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How do demand and supply determine market prices?
In the electricity sector, producers and consumers interact with each other to determine market prices and what quantity of electricity will be supplied and consumed at a given time within the power market. Sellers bid amounts of power for a certain price and buyers indicate how much power they wish to buy at a given price. When demand and supply are matched, the respective intersection states the market clearing price, which can determine what is paid to all successful bids.
What do we mean by TSO, BSP and BRP?
Grid operators and market operators need to ensure that electricity supply matches demand in real-time in order to maintain grid stability and its reliability. But there are several factors that create fluctuations on the demand-side and supply-side such as weather conditions or seasonal variations.
When there is an imbalance, system operators need to activate the available balancing reserves. Transmission System Operators (TSOs) address system imbalances through the activation of balancing reserves that they acquire from Balancing Service Providers (BSPs).
Other key players are the Balancing Responsible Parties (BRPs), who send or receive payments for receiving imbalance energy depending on the prices, which can be either positive or negative. The BRPs are actors who ensure the balance between generation and consumption of electricity within a specific area or region.
Balancing services to level out frequency deviations
Several market mechanisms have been put in place to procure balancing services, create more opportunities for new actors to access the energy market, and increase the efficiency of the power system.
BSPs are actors specialized in grid management, who offer ancillary services to grid operators or markets operators to keep the grid stable. They have a critical role within the energy market, specially due to the increasing integration of Renewable Energy Sources (RES) and the decentralization of the power system.
Balancing services, also known as control reserves, are one type of ancillary services that can be provided to system operators, which include Balancing Energy and Balancing Capacity. The first one refers to energy used by system operators to maintain the grid frequency stable, while the second one refers to the flexible capacity that the provider has indicated as available for a certain period of time with the aim of providing balancing energy.
How can you manage imbalances and be economically compensated?
Market participants can increase profits, for instance, by buying energy on the intraday market or by abstaining from selling excess energy. Therefore, they can also trade on short-term markets to avoid or settle these imbalances. When market participants are capable of predicting system imbalances, they can try to stabilize those imbalances and thus they can be financially rewarded.
The balancing market offers the opportunity to manage supply and demand imbalances in real-time in order to avoid fluctuations, disruptions and blackouts. Some of the balancing services available within this market are the following:
· Frequency response services, used to quickly react to adjust grid frequency deviations.
· Reserve capacity services that can be activated whenever it is needed thanks to providers who have previously commit to offer additional electricity at a given time to address imbalances.
· Demand-response providers who interact with consumers to incentivize them to reduce or shift their energy consumption.
· Load balancing services which ensure that generation output is constantly matching electricity demand in real-time.
· Imbalance settlement, used to address imbalances between the scheduled and the actual electricity consumption or generation.
· Energy storage systems that rely on technologies like batteries to store excess energy when there is low demand and provide it when there is peak demand or not enough generation.
· Virtual Power Plants (VPPs) that allow market participants to combine distributed energy resources and aggregate them into a platform that can manage these resources according to the grid requirements in real-time and thus provide balancing services.
How to make the correct decision in a complex market?
New technologies have emerged to offer real-time data and allow market participants to make informed decisions. Virtual Power Plants offer a wide variety of resources to manage imbalances and even receive economic compensations, for example, by shifting generation or participating in short-term markets.
With these advanced tools, market participants can ensure a reliable and efficient electricity supply, avoiding high costs and obtaining new revenues through the optimization of resources utilization.
