Determining the price for balancing electricity
There are different ways to determine the price of balancing energy. Here is one way to do it.
Providing positive balancing energy. On the capacity market, BSP producers offer to increase their production, and BSP consumers offer to reduce their consumption, for a price. At the close of the market, these prices are known to the ISO. The ISO orders the prices from low to high in a merit order and does not make a selection yet.
During a delivery period, the ISO monitors frequency and activates positive balancing reserve when the frequency gets too high, meaning that there is a shortage of electricity. When electricity needs to be injected, it activates the offers for this period, starting from the cheapest offer in the merit order, until sufficient balance has been activated. It sets the price of this positive balancing reserve as the most expensive activated offer, with a minimum (a pre-determined price for upward incident reserve). It is at least as expensive as this minimum. This way, all BSPs whose offer is activated, receive at least the price they asked.
This benefits the sellers, the BSPs who offer to sell electricity at a high price, and punishes the buyers, BRPs who caused there to be a shortage of electricity on the grid. A consumer who consumes more than contracted for, or a producer who produces less than contracted for, must buy additional energy at a very high price.
Providing negative balancing energy. BSP producers who contracted to deliver energy, may bid to pay money to reduce their production and BSP consumers may bid to pay to increase their consumption.
During a delivery period, the ISO monitors frequency and activates negative balancing reserve when the frequency gets too low, meaning that there is a surplus of electricity on the grid. When electricity needs to be offloaded, it compares the bids for this period and starts activating them, starting from the most expensive one, down along the merit order, until sufficient balance has been activated. It sets the price of the cheapest activated bid as the price of this downward balancing reserve, with a maximum (the pre-determined price of downward incident reserve). It is as cheap as this maximum, or cheaper. This way, all BSPs whose bid was activated, pay at most they price they offered to pay.
This benefits the buyers, the BSPs bidding to buy electricity at a low price, and punishes the sellers, BRPs who caused a surplus of electricity on the grid. A consumer who consumes less that it contracted for, and a producer who produces more than it contracted for, must sell the surplus electricity at a very low price.