The methodology for determining the prices of balancing energy should prevent the illegal behavior of commercial participants

The Commission for Energy and Water Regulation held a public discussion of a draft Methodology for determining prices of balancing electricity /Methodology/. In accordance with the requirements for publicity and transparency, the project and the report of the working group were published in advance on the website of the regulator and on the Portal for public consultations. Representatives of ESO EAD, NEC EAD, Electrohold Sales and Electrohold Trade, Free Energy Market Association, Bulgarian Photovoltaic Association, energy experts participated in the discussion.

The main reason for the adoption of the Methodology is the amendment of Art. 21, para. 1, item 11 of the Law on Energy /ZE/, according to which it should not be part of PTEE, but should be accepted as an independent act of the Commission. The authority of EWRC is revoked according to Art. 21, para. 1, item 8 of the ZE to set an annual threshold price for concluding transactions on the balancing energy market. In view of this, the EWRC should adopt a methodology for determining the prices of the balancing electric energy, with which to regulate the way of determining the prices of the balancing energy in accordance with the amendment of the regulatory framework and the current development of the market. The methodology also reflects the consequences of the upcoming accession of the independent transmission operator (NPO, ESO EAD) to the European balancing platforms according to Commission Regulation (EU) 2017/2195 of November 23, 2017 establishing guidelines for electricity balancing (Regulation (EU) 2017/2195), since the current methodology only takes into account the prices of the activated sources for regulation in the national market area.

After NGOs join the platforms, Bulgarian providers of balancing services will compete effectively with European providers. Electricity price proposals for upregulation and downregulation from the activated reserves for automatic and manual secondary regulation of frequency and exchange capacities will be sent to the platforms, where they will be aggregated into common priority lists together with the proposals of suppliers from other countries. The activation of these offers will be done according to the price of the respective offers through an optimization function in the platforms themselves. This means that when determining the prices of the balancing energy in the Republic of Bulgaria, the quantities and prices of the balancing energy of the providers of balancing services outside the country will have to be taken into account, which will be sent to ESO EAD from the relevant platform.

The adoption of a new Methodology should prevent, or at least drastically limit, illegal behavior on the part of commercial participants, endangering the security of the electricity system. Signals to this effect have been received by EWRC from ESO EAD, indicating cases of non-fulfillment of dispatch orders, which are mandatory by law, by commercial participants. This has led to a disruption of the balance between the production and consumption of electricity and has created difficulties in the joint work of the electricity system of the Republic of Bulgaria with the energy systems of neighboring countries, including the synchronous zone of Continental Europe. In the period 13.02.2024 - 10.03.2024, there were 10 days with registered violations of producers in the electricity transmission and distribution networks, and in some cases the deviations between commercial schedules and the actual measured amount of electricity produced for each individual hour are drastic – from 20% to over 130%. It was ordered by ESO EAD to strictly observe the registered trading schedules without exceeding the production.

One of the objectives of the Methodology project is to regulate clearer rules and a fairer mechanism for determining the prices of balancing energy, which take into account the interests of all market participants. Significant amounts of surplus electricity are currently being reported in the power system, which are expected to increase as the warmer months approach. This poses risks to both system security and national security. Continued cases of speculative behavior by trading participants who, taking advantage of the imperfections of the balancing market, deliberately choose a position of delegated surplus or shortfall as early as "day-1" should be minimized. In this way, they compromise the functioning of the market, harm bona fide commercial participants and make it difficult to regulate the electricity system, causing disruptions in other control areas.

To achieve these goals, additional price and correction mechanisms have been introduced in the Methodology project for more adequate regulation and prevention of significant imbalances in the system and for disciplining all trading participants. The same overage or underage price is provided for each settlement period, with previous regulation statuses dropped. A final price is determined for each settlement period based on four calculation steps that prevent trading participants from speculating on the prices of a market segment "intraday" on the organized exchange market, while also taking into account the need for specific exhaustion pricing of adjustment ranges. Clear and fair rules for financial payments between NGOs and the coordinators of balancing groups are regulated, in accordance with the requirements of Regulation (EU) 2017/2195.

The adoption of the Methodology will guarantee the application of a completely market principle when determining prices of balancing energy for upward or downward regulation and will create conditions for the distribution of system regulation costs through adequate and fair prices for energy surplus or shortage. The implementation of the normative act will significantly reduce the imbalances of commercial participants, as they will be stimulated to forecast their schedules as accurately as possible. The methodology will significantly improve the operation of the balancing market, increase the confidence of commercial participants and lead to more effective regulation and increase the security of the electricity system of the Republic of Bulgaria.

The participants in the public discussion supported the need for the adoption of an independent Methodology for determining prices of balancing energy. The opinion of NEC EAD and ESO EAD is that the normative act fully implements European practices and is a factor for disciplining the commercial participants and for crossing cases of abuses with the import of unnecessary electricity, which creates serious problems in the work of the system operator. According to the companies from Electrohold, greater transparency is needed on the part of ESO EAD, which should regularly publish the imbalances in the system and the offered prices from all sources, in order to have clarity on how the balancing energy prices are formed.

In addition to the changes in ZE, an additional factor for the adoption of the Methodology are the signals from ESO EAD about problems with imbalances in the electricity system, emphasized the head of the working group Plamen Mladenovski, director of the Directorate "Electricity and Thermal Energy". He explained that in order to ensure the physical balance of the system, it is of particular importance that commercial participants strive to ensure balance in their balancing group. Undertaking emergency measures with the Methodology is the fact that a greater proportion of participants bet delegated surpluses to avoid high shortage prices. This leads to huge surpluses in the entire system, which makes it difficult for ESO EAD, given the lack of operating base capacities /coal plants/ that could reduce their production in order to balance.

The Chairman of the Commission Prof. Ivan Ivanov emphasized that after the adopted legal changes, the Commission is working extremely intensively in order to promptly fulfill its commitments to adopt the necessary secondary legislation, thereby supporting the efforts of our country to fulfill the conditions for receiving European funding under the Plan for recovery and resilience. In parallel with the upcoming adoption of the Methodology for determining the prices of balancing electricity, the new Ordinance No. 6 on connection of objects to the electric grids was finally adopted, with which amendments were also made to Ordinance No. 3 on licensing of activities in the energy sector. The adoption of changes to Ordinance No. 1 for the regulation of electricity prices is pending, as well as changes to the Rules for trading in electricity.

In accordance with the regulations, within 14 days after the public discussion, all interested parties can submit written opinions on the draft Methodology for determining prices of balancing electricity. On each of them, the regulator will issue a reasoned opinion in its final decision. EWRC's decision to adopt the Methodology is to be taken at a closed meeting on 04/19/2024.