Gaming Strategies in European Imbalance Settlement Mechanisms

Abstract: Transmission System Operators (TSOs) rely on balancing energy provided by Balancing Service Providers (BSPs) to maintain the supply-demand balance in real time. Balance Responsible Parties (BRPs) can simultaneously deviate from their day-ahead schedules in response to imbalance prices, e.g., by controlling flexible assets such as batteries. According to the European Electricity Balancing Guideline, these imbalance prices should incentivize BRPs performing such implicit or passive balancing to aid the TSO in restoring the energy balance. In this paper, we demonstrate that BRPs are unintentionally offered the opportunity to exploit gaming strategies in European imbalance settlement mechanisms. This is enabled by a disconnect between sub-quarter-hourly dynamics that determine the imbalance prices and the financial settlement on a quarter-hourly basis. We illustrate this behavior in a case study of the imbalance settlement mechanisms in Belgium and the Netherlands. Our results reveal that, in both countries, BRPs can, in theory, exploit the imbalance mechanism by increasing the instantaneous system imbalance during minutes within the quarter-hour that determine the imbalance price while still contributing to restoring the system balance for the rest of the quarter-hour.