Agent-based analysis of the impact of the imbalance pricing mechanism on market behavior in electricity balancing markets

The imbalance pricing mechanism is an important design variable within European-type electricity balancing markets that determines the incentives given to so-called Balance Responsible Parties (BRPs) to balance their electricity production and consumption portfolio. To analyze the impact of alternative imbalance pricing mechanisms on balancing market performance, an agent-based model has been built, in which the BRPs are the agents that decide autonomously in each round on their balancing strategy based on results in past rounds. Six alternative mechanisms are analyzed. It is concluded that aiming for a small long position is generally the preferable BRP strategy. Different imbalance pricing mechanisms lead to comparable system imbalances, but single pricing results in the lowest imbalance costs for the BRPs and for the market as a whole.

► We model the impact of the imbalance pricing mechanism in balancing markets. ► The six alternative mechanisms analyzed result in different imbalance costs. ► The effect of alternative mechanisms on system imbalances is very similar. ► Single pricing leads to the lowest imbalance costs for the market. ► Balance Responsible Parties opt for small and positive individual imbalances.