A congestion-dependent imbalance pricing mechanism for regions allowing passive balancing

TL;DR

This work tackles the challenge of maintaining grid balance as renewables and market design evolve, by proposing a congestion-dependent imbalance pricing mechanism that preserves passive BRP balancing while controlling congestion. It develops a two-stage stochastic BRP model to analyze day-ahead and imbalance-price uncertainty across three IPMs (single-price, two-price, dual-price) and demonstrates the mechanism on a Dutch distribution-network case. The results show that localizing the pricing adjustment to congested areas mitigates unexpected peak flows, while maintaining passive balancing in non-congested regions, with only modest reductions in BRP profitability. The study highlights policy implications for improved TSO-DSO coordination and data sharing, outlining practical considerations and trade-offs for real-world implementation.

Abstract

Maintaining system balance becomes increasingly challenging as market design and grid capacity enhancement lag behind the growing share of renewables, requiring greater effort from both the transmission system operator (TSO) and the Balance Responsible Parties (BRPs). An actor can support balancing actively by bidding into reserve markets, or passively by adjusting its portfolio in line with system needs. In some countries, BRPs are incentivized to engage in passive balancing when their deviations support overall system stability. However, BRPs focus on profit maximization rather than minimizing portfolio discrepancies, which can cause simultaneous responses to price signals and create issues at the transmission-distribution interface. This research provides a two-stage stochastic model that captures BRP dynamic behavior and their impact on the grid under day-ahead and balancing market price uncertainty across three imbalance pricing mechanisms: the single, dual, and two-price. Then, a congestion-dependent imbalance pricing mechanism is proposed that maintains incentives for passive balancing while satisfying the grid constraint. A proof of concept is provided via the simulation with a part of the Dutch distribution grid. Results show that the proposed method mitigates the unexpected peak flow issue in congested areas while preserving passive balancing contributions from other BRPs in non-congested areas.

Figures (8)

• Figure 1: Market timeline.
• Figure 2: a) General imbalance pricing mechanisms, b) Imbalance pricing mechanism in the Netherlands.
• Figure 3: Proposed mechanism.
• Figure 4: BRP 2-stage models.
• Figure 5: BRP surplus and shortage in real-time