A congestion-dependent imbalance pricing mechanism for regions allowing passive balancing

Abstract: Maintaining system balance becomes increasingly challenging as market design and grid capacity enhancement lag behind the growing share of renewables, requiring greater effort from both the transmission system operator (TSO) and the Balance Responsible Parties (BRPs). An actor can support balancing actively by bidding into reserve markets, or passively by adjusting its portfolio in line with system needs. In some countries, BRPs are incentivized to engage in passive balancing when their deviations support overall system stability. However, BRPs focus on profit maximization rather than minimizing portfolio discrepancies, which can cause simultaneous responses to price signals and create issues at the transmission-distribution interface. This research provides a two-stage stochastic model that captures BRP dynamic behavior and their impact on the grid under day-ahead and balancing market price uncertainty across three imbalance pricing mechanisms: the single, dual, and two-price. Then, a congestion-dependent imbalance pricing mechanism is proposed that maintains incentives for passive balancing while satisfying the grid constraint. A proof of concept is provided via the simulation with a part of the Dutch distribution grid. Results show that the proposed method mitigates the unexpected peak flow issue in congested areas while preserving passive balancing contributions from other BRPs in non-congested areas.