Pricing issue in Nordic mFRR EAM
During testing, the Nordic TSOs have discovered situations that can lead to undesired prices in the mFRR clearing. To avoid the most consequential situations the TSOs will strive to implement functionality to manually verify the price results. This will lead to a delay in publishing of the mFRR prices and imbalance prices for the affected time units.
Activation of indivisible mFRR bids on the price margin can in some instances lead to undesired determination of what areas that shall have the same price, i.e. the uncongested areas. This can lead to that high (or low) prices spread to more areas than intended. In these areas there will be many unselected bids with better price1 than the clearing price, and mFRR prices and imbalance prices that do not represent the mFRR market situation in a good way. According to the Nordic TSOs this can lead to misguiding price signals to the market. The bid selection from the mFRR EAM algorithm is correct, and will not be changed, only the price formation.
The TSOs will aim to remove this problem by improving the mFRR EAM algorithm as soon as possible, and this work is already underway. However, it will not be possible to remove this problem before the scheduled go-live of mFRR EAM on March 4th. Until a permanent solution is in place the TSOs will assess the need for temporary measures to avoid the worst consequences. These measures will be in place from go-live at Energinet, Svenska Kraftnät and Statnett, while Fingrid will evaluate demand for these temporary measures after go-live.
The TSOs with these measures will implement automatic verification of the mFRR prices. If this verification fails, the automatic publication of mFRR prices and imbalance prices will stop for this quarter hour/hour for all Nordic bidding zones, triggering a manual process correcting the prices. Correct prices for the affected periods will be published at 15:00 local time in Sweden, Denmark and Norway the following workday. Automatic publication of prices will continue for the other periods.
The automatic detection works by analyzing the amount of unforeseeably rejected bids, i.e. bids that are not activated even though they have a better1 price than the clearing price. Many such bids, or unselected bids with a much better price than the clearing price are indications that the pricing result is not as intended.
In order not to stop the automatic process too often, the TSOs will define a threshold for how large this price difference must be to trigger the automatic detection. Each TSO determines this threshold. From the beginning it will be a price difference of 100 € in Norway, Sweden and Denmark. Fingrid will decide the threshold based on operational results after go-live. This means that the cross-border marginal price will not be corrected, unless the price deviate from the optimal result more than this threshold. The threshold will be evaluated after go-live based on operational experience.
When TSOs have determined that the price was not set correctly, a manual process will be used to determine the correct prices. The key element of this process is to determine the correct uncongested areas, referring to the “the widest area, constituted by bidding zones, where the exchange of balancing energy and the netting of demands is not restricted by the cross-zonal capacities or by the allocation constraints, during a specific market time unit”2 Once uncongested areas have been determined the prices can be easily determined as the most expensive activated bid in the dominating direction in those areas.
It is difficult to estimate in advance how often this problem will occur. In the TSOs test operation we see that it is quite frequent, and we expect that single periods can be affected most days. The frequency of cases will decrease if market participants will provide more divisible bids.
You can find more information about mFRR EAM here at the Nordic Balancing Model website and at the local TSO websites:
Fingrid LINK
Svenska Kraftnät LINK
Statnett: LINK
Energinet LINK
1Lower price for up regulation bids or higher price for down regulation bids