Analysis of imbalance settlement designs in electricity systems

Abstract: This report analyses the eciency and re-distributive eects of diverseImbalance settlement designs in the electricity market. This work relieson an on-going EDF(Electricite de France) research project on electricitybalancing and is based on a simulator tool, SiSTEM, developed by EDFand the University of Liege. The analysis focuses on the consequencesof imbalance settlement on market participants and on the TransmissionSystem Operator . The revenues of market participants and the TransmissionSystem Operator are analyzed as well as the impact of imbalancesettlement design on market participants' behaviour.Based on our case study simulations' results, the following conclusionscould be drawn. When all the market participants are adjustingtheir behavior regarding the imbalance settlement, imbalance volumesare signicant and increase the interactions between power companiesand the Transmission System Operator. However, the system social welfareis improved. Removing the penalty factor present in the denitionof imbalance prices or moving from average to marginal pricing increasesthe imbalance cost. For Balancing Responsible Parties, if they adjusttheir behavior regarding the imbalance settlement, i.e. they deliberatelyhave imbalances due to their expectation of the system imbalances, theywill increase their imbalance costs as they try to optimize their ownportfolio (comparing their own internal cost if they are in balance, withthe imbalance cost) without looking at the other Balancing ResponsibleParties.