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The Energy and Water Regulatory Commission adopted a decision to apply a one-off compensation mechanism in relation to the extremely high prices achieved on the balancing electricity market on 19 May 2024. The decision obliges the Electricity System Operator (ESO EAD) to carry out a secondary settlement for 19 May 2024 to calculate the obligations of market participants for balancing energy under a mechanism reflecting compensation in relation to the financial surplus realised by the transmission system operator on that date.
Pursuant to Article 44, par. 1, б. "и" of Regulation (EU) 2017/2195. the main principle in the implementation of the procedure for the settlement of imbalances on the balancing electricity market, respectively in the determination of the balancing energy price, is to ensure the financial neutrality of the transmission system operator. Compliance with this principle should be ensured by the regulatory authority through the application during the regulatory period of an appropriate mechanism on the basis of which any positive or negative financial result resulting from the settlement of imbalances on the balancing market is passed on to electricity network users in such a way that, as a final result, the transmission system operator does not receive economic benefits or losses - Article 44, para. 2 of Regulation (EU) 2017/2195.
According to the EWRC, the solution solves the problem by a fairer way of distributing the costs of balancing electricity between all market participants. Taking into account all the analysed facts and circumstances, the regulator considers it justified that during the current regulatory period of ESO EAD ending on 30 June 2024, the financial surplus of the transmission operator realised from the operation of the balancing market on 19 May 2024 should be transformed into financial neutrality for ESO EAD. This will be done by the operator performing a secondary settlement, in which only the price calculated in accordance with the Methodology for determining the prices of balancing electricity /The Methodology/ will be used in the calculation of the obligations for May 19, 2024 of the market participants. For the settlement periods to which Article 8, para. 4 of the Methodology applies, an additional coefficient shall also be applied, reflecting compensation in relation to the financial surplus realised by the transmission system operator on May 19, 2024.
The Commission considers that the claims of the balancing group coordinators from the operator for May 19, 2024 should not be adjusted as they are the result of their professional and responsible conduct. Until the last possible moment, they have rigorously and accurately have monitored in real time the production and consumption in their group, taking all necessary actions to achieve a balanced schedule, including through active participation in the intraday market. Stimulating such behaviour in all balancing group coordinators is the underlying goal for the creation of the balancing market. In this regard, coordinators who have realised higher revenues should not be obliged to return a portion of their higher revenues for the specified date, as this would discourage them from continuing to monitor their schedules in the current precise and responsible manner, the regulator said in its message.
The main factors for the high balancing energy prices on 19 May, 2024 are specified in the EWRC decision. It is clarified that the reasons are: the lack of reaction and underestimation of the situation by a significant part of the balancing group coordinators on the specific date; the taking advantage of one of the main balancing energy suppliers of the lack of sufficient competition in the provision of electricity to cover the huge shortage realized; as a result of the high prices of balancing energy and the huge shortage of EES, for the delivery intervals from 8:00 am to 8:00 pm. On May 19, 2024, the adjustment with the coefficient under Article 8, para. 4 of the Methodology was applied, accordingly the costs and revenues of the balancing group coordinators reached extreme levels, while the other days of the month generally did not show excessively high values.
The application of a one-off compensation mechanism to ensure financial neutrality of the transmission operator is justified only in view of the strictly specific facts and circumstances of the functioning of the balancing market in conditions of short-term operation of the Methodology due to the regulatory period of ESO EAD ending on 30 June 2024. After that date, such a mechanism cannot be applied as among the arguments for this are the rights and obligations of the electricity transmission operator after its accession to the European balancing energy platforms, the announcement states.
The full text of the EWRC Report is published on the website of the regulator.
Source: EWRC
