Study of electricity and gas imbalances for retailers' risk reduction and profit maximization

Abstract

Due to increasing competition and margin reduction, gas and electricity retailing activities require a good understanding of costs to make the business profitable. One of these outflows is the imbalance cost, which comes from the deviation incurred when forecasting customers’ consumption. Both gas and electricity systems have to be continuously balanced to ensure security and quality of supply, so markets are designed to incentivize agents to balance the system. This incentive is given by applying different prices to the imbalance of agents. For example, electricity used to balance a portfolio is bought or sold at the same price as the day-ahead market price (implying no penalization) if the imbalance is in the opposite direction of the system imbalance. However, if imbalance is in the same direction as the system imbalance, the agent will be making system imbalance higher, so electricity to balance the position will be bought for a more expensive price than the day-ahead market price or sold cheaper than it. Applying an imbalance strategy, having forced deviations when forecasting customers’ imbalance depending on imbalances’ prices, can be positive. In this study, savings can reach almost 0,05 €/MWh, so almost 10% of the imbalance cost is reduced. The strategy will depend on the forecast of another electrical variables that could affect imbalances, such as wind, price, demand or solar energy. In the case of gas, the incentive is lower as Enagás, the Spanish system’s technical manager can exercise buys and sells in the free market as if it was an agent if he considers that it is necessary for keeping the system balanced. There is a purchase and a sell cost for imbalances that could be slightly increased if the GTS takes a balancing action. Thus, unlike electricity, every imbalance implies a penalty no matter its direction, but this penalization is typically lower than the ones seen in electricity markets. Hence, a typical imbalance cost having a 20% hourly deviation when forecasting consumption could be between 0,01 and 0,02 €/MWh strategy, so savings would be lower, not even reaching half a cent per MWh. As a conclusion from this study it may be extracted that every taken strategy will imply an almost negligible saving. The strategy developed will not depend on external variables but on indexes published by Enagás, such as the IDQ or DQA. When these indexes reach some values, the GTS has to compensate them by acting and making imbalance prices higher; then retailers have to react in the day-ahead market or in the intraday market modifying their buys to not be over penalized because of the imbalance.