Publications / Research Papers
Incentive problems in the Hungarian Energy-Balancing MechanismCompetition and Regulation 2015 - books, chaptersPublished: 1 of January, 2007

This paper examines the functioning of the balancing market of the electricity sector in Hungary. Balancing energy is an ancillary service, which is used by the transmission system operator (TSO) to guarantee the continuous supply of electricity. The TSO resolves unforeseen imbalances by calling on power plants in real time to increase or decrease their production (called upward or downward regulation). In order to comply with the balancing mechanism and settlement process, market participants organize into so-called balancing groups lead by the balancing responsible party (usually a trader or supplier). Based on the forecast of the balancing group's day-ahead consumption and production, the balancing responsible party (BRP) prepares the schedule of the balancing group, forwards it to the TSO, and then settles the imbalances with the TSO resulting from any deviation from the announced schedule. In our study we examine the question of how current balancing energy and imbalance prices affect the incentives on suppliers to keep their portfolio balanced. Taking only the price difference between negative and positive imbalance prices into consideration, we can say that incentive on suppliers to avoid imbalances is very strong in the Hungarian market. However, we also show that because of the asymmetrical penalties for being long versus short, suppliers are inclined to under-contract energy on the wholesale market. Finally, our analyses also reveal that the current structure of the purchase and settlement price of balancing energy motivates the public utility wholesaler (the BRP for the public utility balancing group) to nominate more than its expected load.

Available at the publisher's website