The interplay between imbalance pricing mechanisms and network congestions – Analysis of the German electricity market

• There is interplay between energy imbalances and network congestions.
• Congestions frequently occur within the German electricity system.
• The German imbalance pricing may create incentives that can endanger the energy balance.
• Alternatives options of imbalance pricing schemes can give efficient price signals.

With a high penetration of intermittent energy sources in Europe, the relevance of the balancing mechanisms increases, as these sources may require additional balancing actions and increase network congestions. Germany has experienced a significant penetration of intermittent energy sources and network congestions. This paper analyses the functioning of the German balancing mechanisms, with a special focus on the interplay between imbalance pricing and network congestions. We demonstrate the existence of adverse price signals caused by a flawed design of imbalance pricing in relation to network congestions. This paper proposes alternatives options for imbalance pricing that can improve price signals even in the situation of network congestion.