The new aFRR EAM - Energy Activation Market - went live in Finland in mid June 2024, as a first step in the integration of Finland into the Picasso platform for European cross-border aFRR EAM. Actors are now able to bid qualified flexibility into the Finnish aFRR market, which is then cleared and priced in real-time at 4-second time intervals. With the move to a 15 minute time step for bid validity, imbalance and pricing more broadly across the energy power markets, the 4-second clearings are used to derive 15 minute volume weighted average prices for aFRR.
The introduction of the aFRR EAM has lead to changes in the calculation of imbalance price in the Finnish market. Previously, imbalance has been priced at the mFRR EAM price in the so-called “dominating direction”, as energy used to rectify imbalance was paid at the mFRR EAM price. Providers of aFRR were also paid the mFRR EAM price for their aFRR energy. This way, the money paid to providers of imbalance energy more or less equaled the money paid by those out of balance. With the introduction of the aFRR EAM market this relationship no longer held, and the imbalance price calculation has been adjusted to account for the cost of aFRR as well as mFRR activations. Generally, the imbalance price for Finland is now set by the most extreme (largest absolute spread to spot) of the mFRR EAM and the aFRR EAM prices in the dominating imbalance direction. Note however that the dominating direction is still set by the mFRR activation - aFRR activation is not accounted for.
So, how has this new regime impacted imbalance prices in Finland? Examining prices since the change over on the 12th of June, we see that the introduction of the aFRR market has had a significant impact on price setting for imbalance prices. Firstly, we still see around 30% of hours with no activated mFRR, and consequently no dominant direction and an imbalance price equal to spot. However, previously where both up and down mFRR set imbalance prices around 36% of the time each, now both set prices around 9% of the time each. In hours with a down dominating direction the Imbalance price is set by the aFRR price in 4 out of 5 hours, and in 2 out of every 3 hours with an up dominating direction.
We’ve also seen a change in the distribution of hours with up and down dominating directions. Previously, up and down dominating directions occurred around 36% of the time; post mid June, only 24.7% of hours were up, and 42.5% of hours were down. Now, we are talking about only a few months, so this could simply be a result of the time of year, lower demand and a tendency for over production. However, it will be worth observing if this continues - and specifically, are we seeing an impact of the aFRR market on overall imbalance levels, imbalance direction and mFRR activations?
We are definitely seeing a difference in patterns of aFRR activations up and down so far. Recall that aFRR is structured in 15 minute time blocks, whereas mFRR and imbalance are still in hour time blocks. Over all hours, we can count the number of 15 minute time blocks in each hour with aFRR up and down activation:
Interestingly, in almost half of the hours with some aFRR down activation, we see activation in all four 15 minute intervals almost 50% of the time. For up aFRR, this reduces to 27%. aFRR is over 60% more likely to be activated up in two or fewer 15 minute blocks in an hour than aFRR down.
Again, it will be very interesting to see if this trend continues, or if we revert to a more balanced activation structure.
Finally, looking at the prices of activated aFRR up and down also yields some interesting insights.
In hours with at least two 15 minute periods of aFRR activation, the average spread between the max and min aFRR 15-minute volume weighted prices is around 12-15 €/MWh for down regulation, and 30-50 €/MWh for up regulation. Combining both these results, when aFRR down is activated, it is typically activated over most or all of the hour and at similar prices per 15 minute block. When aFRR up is activated, it is typically activated for some of the 15 minute blocks - but not all - and the prices per block are significantly more volatile.
Looking at the most extreme 15 minute aFRR VWA price for each hour (that is, the per-direction aFRR VWAP each hour furthest away from spot) in those hours with aFRR activation, we see that average max aFRR up spread-to-spot is almost 2x the average max aFRR down spread-to-spot. Combined, we see that aFRR up activation is significantly more volatile, in price and activation, than down.
We get an even more extreme pattern looking at the spread between the max aFRR price and the mFRR prices in the same direction. Taking the average aFRR to mFRR spread when dominating direction is down, and when dominating direction is up, we see that the absolute spread is typically substantially higher for dominating up than dominating down over all week days. The exception is Mondays - but this is driven by the extreme mFRR up prices (3000 €/MWh) for two hours on September 23rd. Excluding that day results in a similar pattern on Mondays to those for the other weekdays, with the typical aFRR-mFRR up spread around 33 €/MWh.
This is important not just for the aFRR market, but for the imbalance price. Up aFRR is more volatile, and is comparatively more expensive compared to spot and mFRR up than aFRR down is cheaper compared to spot and mFRR down. This drives more volatility into the imbalance price when dominating direction is up compared to down, and increases the risk of being short balancing energy. Perhaps this is a driver for the increase in down regulation and decrease in up regulation hours we have seen since June 12th - that Finnish actors are managing this risk by selling less than their expected production in the spot market, in order to reduce their expected need for up regulation and exposure to the now more volatile and higher up-imbalance prices? The team in Optimeering will be following developments closely - as will our imbalance forecasting models!
Коментари