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How imbalance prices affect trading

As a last mile specialist, Senfal focuses on the late game: how to optimize day-ahead, intraday and imbalance trading.

A new deal

The last couple months a lot has changed in the electricity market. Day-ahead prices have risen more than 30% from an average of € 38,81 in January, to an average of € 59,74 in November. Peak-averages have risen from € 44,68 to € 72,63. Also, in November there was an unusual dynamic in the imbalance market. You could make more money by selling energy produced in the imbalance market, than on the day-ahead market. In this blog I’ll go a bit deeper into this dynamic.

The balance of the grid

Imbalance prices are the prices paid for deviations from production schedules. For a wind turbine, this schedule is often made by forecasting the production a day before the day of delivery. Usually this has an error of about 20%. That means that for 20% of the production volume, you either produce more, or less than expected. If more is produced then sold, the feed price is received, if less is produced, the take price is paid. In the graph below you can see the average feed-price, the day-ahead price and the take-price for each month of 2018.

Imbalance prices to trigger participants

This system is supposed to give market participants an incentive to avoid imbalance. Naturally participants are triggered when the imbalance market will give them less profit than the day-ahead market. In that case, if you deviate from your schedule you’re always off worse. For example:

  1.  if you produce more than your schedule, you will receive the feed price, which is then lower than the day-ahead price;
  2. If you produce less than your schedule, you will have to pay the take price, which is higher than the day-ahead price which you sold for. This results in you making a loss on that trade.

In the graph this would be represented in a neat stepladder pattern as is the case in January. However, as you can see in the graph above, this is not the case for the majority of the year. Especially the month of November was an extreme outlier.

Better take a vacation than trade yourself

“The imbalance market in November exerted an extreme pattern: feed prices were about € 5/MWh higher than day-ahead prices. If you were a trader selling electricity on day-ahead markets, it would have been best to go home and take a well deserved vacation. In fact, in most cases doing this would have given you a higher return per MWh than trading yourself.

Robotic Power Trading incorporates crazy patterns

At Senfal we closely follow the trends on imbalance markets. We need these insights for our trading decisions. As a last mile specialist, we focus on trading decisions within the last 24-hours. Depending on insights in imbalance markets, we decide upon a day-ahead trading strategy. For example, when feed prices are expected to be higher than day-ahead prices, less volume is offered to the day-ahead markets. Our trading robot makes these decisions fully autonomous and continuously. With our trading robot, we help clients optimize on their energy purchasing process.