A short guide to the Balancing Mechanism
The Balancing Mechanism, or BM, is one of the tools used by NGESO, the System Operator (SO), to balance electricity supply and demand close to real time. It is needed because electricity cannot currently be stored at scale and must be manufactured at the time of demand. Where NGESO predicts that there will be a discrepancy between electricity production and demand during a certain time period, they may accept a ‘bid’ or ‘offer’ from a Market Participant to either increase or decrease generation (or consumption). The balancing mechanism is used to balance supply and demand in each half hour trading period of every day.
The operation of the Balancing Mechanism relies on the flow of data and information between NGESO, Market Participants and their generating assets, organised into Balancing Mechanism Units (BMUs), in real time to ensure that system balance is maintained. NGESO specifies the interfaces that must be used for these processes and certifies a number of software products for this purpose. Proper use of these systems is a major step towards compliance with the Balancing and Settlement Code (BSC).
Most electricity trading happens in the wholesale market, well ahead of the timescales covered by the BM. Generators and suppliers contract with each other for every half hour of every day; sometimes years in advance. This trading can continue up to one hour before each half hour delivery period, known as a settlement period. At this point the market for that time period is closed, this milestone is known as gate closure. In parallel with this trading activity, generators must publish details of their intended level of production for each settlement period, providing NGESO with a forward plan of output via its Electronic Data Transfer or EDT system. Trading activity up to gate closure must be notified to the Market Operator, Elexon. These trades, submitted as Electricity Contract Volume Notifications (EVCNs), establish the position for each generator up to gate closure. Thereafter, BM instructions issued to generators result in variations in production that must be reconciled and settled through Elexon’s Central Services.
Following gate closure, NGESO accepts Bids and Offers submitted via EDT as required to balance the electricity on the Transmission System. This results in the issue of instructions, Bid Offer Acceptances (BOAs) that are delivered to Participants via the Electronic Dispatch Logging (EDL) system. When accepting these instructions, Participants must then act to ensure that their BM Units produce the required level of output. A failure to do so results in an imbalance, which in turn affects the profitability of the business.
A key task undertaken by Elexon is the settlement of activities carried out in the BM. It utilises data from a variety of sources, including BM Unit metering data for actual production, planned production based on Physical Notifications (PN), BM price Bids and Offers and instructions from NGESO based on those Bids and Offers (BOAs). Having processed and reconciled this data, Elexon calculates BM cash-flows and issues invoices accordingly, making settlement data available to Market Participants via the Settlement Administration Agent (SAA).
Our Sentinel software suite is certified by NGESO and Elexon for use by BM Market Participants and provides a comprehensive range of applications to streamline the processes associated with successful BM operations.
Key BM Activities
We have produced this diagram to provide an overview of the key activities involved in participation in the BM. It shows how Market Participants interact with NGESO and Elexon, and the key components of our Sentinel suite that can support those processes. The activities have been divided into two groups; those that occur before gate closure and those that happen after it. Gate closure marks the transition from planning and trading to the delivery phase of the market.
Before Gate Closure
Making Informed Trading and Pricing Decisions
The submission of Bid Offer prices that are competitive, and therefore attractive to NGESO, is key to success in the BM. Access to high quality market insight is an invaluable input to the development of successful pricing tactics. While Elexon publishes a wealth of market data via the Balancing Market Reporting Service (BMRS), the ability to access analysis based on this data designed around the needs of front office analysts and traders adds considerable value to this unique resource. That’s where MarketWatch comes in. We designed MarketWatch to provide a highly structured window on the balancing market, presenting live and historical data, summarised and analysed to create an invaluable decision support tool for traders working in the BM.
Submitting Accurate Contract Notifications
Once bilateral contracts are agreed, contract volumes need to be notified to Elexon so they can be factored into imbalance calculations. Accurate contract notifications are a vital part of your trading activity, as they determine your imbalance exposure so errors or incorrectly notified contract volumes can have a major financial impact. Trading arrangements are designed so BSC Parties are responsible for accurate notifications, and Elexon assumes that notifications it receives are correct.
The Sentinel NS notification system is designed to ensure that Energy Contract Volume Notifications (EVCNs) and Market Volume Reallocation Notifications (MVRNs) are managed effectively, utilising a range of features to validate notification files and capture and report the required acknowledgements from Elexon.
Managing Physical Notifications and Bid Offer Price Submissions
Submitting an accurate picture of expected future generation, including PN, MEL and a range of other dynamic indicators that tell NGESO about the flexibility of your BMUs alongside commercially attractive Bid Offer pricing is fundamental to the profitable operation in the BM. Sentinel EDT is NGESO certified and offers a range of features designed to ensure that these Trading Point submissions are made securely and consistently.
Disclosure of Planned Outages and Constraints
In order to comply with a range of both UK and European regulations, including OC2, REMIT and ETR, related to market transparency, Market Participants are required to publish details of planned changes to power availability via a number of channels. Depending on the capacity of individual BMUs, and your portfolio as a whole, you may be required to make such disclosures. Sentinel THOR enables you to centralise the production of disclosures, ensuring that they are routed to the right publication platforms, so that they are consistent with one another, and ensure compliance to permit continued trading.
After Gate Closure
Dealing with Instructions from NGESO
NGESO is responsible for balancing the GB electricity system in real-time. By issuing instructions to Market Participants, it maintains the equilibrium between supply and demand and the constant frequency so vital to the health of the system. In order to achieve these results every minute of every day, it requires robust interfaces with Market Participants. Sentinel EDL is certified by NGESO to provide the interface required between its control room and yours for the delivery of instructions including Bid Offer Acceptances, and Frequency Response and Reactive Power ancillary services.
EDL is a requirement for BSC compliance for any generator operating in the BM.
As the energy transition gathers pace and asset portfolios become more complex and distributed, the act of dispatching individual BMUs efficiently is essential to control room productivity. Both generation and demand management utilise a wide variety of proprietary and bespoke control systems and the result is that there is no one solution to the automation of the dispatch process. However, based on experience accrued across a wide range of projects, we have encountered and addressed many variations in plant interface requirements for the collection of meter data required to monitor plant performance and manage imbalance and to facilitate the injection of set point data to automate the dispatch process.
Submitting changes of availability and capability for BMUs
The performance of all power generation assets is subject to the impact of unforeseen circumstances and events. While expected generation plans are submitted to NGESO up to gate closure via EDT, a different interface is required post gate closure. Should operating conditions change as a result of weather or technical failure there may be a need to make submissions to NGESO indicating changes to available level of output, or other factors likely to impact on the ability to deliver against its instructions. Sentinel EDL provides control room operators with the interface required to ensure that such variations are notified, including a facility to redeclare MEL to zero in the event of a trip.
Monitoring BMU Performance
The ability of both commercial and control room teams to monitor the performance of BMUs in real time is vital. Traders need to have access to information that informs their trading actions, while operationally control rooms need real time feedback to enable them to identity and address issues that might otherwise lead to costly imbalances.
Sentinel Position Monitoring (PM) provides views of your portfolio, tailored to the needs of individual user groups, to ensure that the spot values, tables, charts and alerts required to keep them in touch with actual operations are delivered clearly and consistently to support remedial trading and operational interventions.
Reporting Actual Outages and Constraints
In order to comply with a range of both UK and European regulations, including OC2, REMIT and ETR, related to market transparency, Market Participants are required to publish details of actual changes to power availability via a number of channels. Depending on the capacity of individual BMUs, and your portfolio as a whole, you may be required to make such disclosures. Sentinel THOR enables you to centralise the production of disclosures, ensuring that they are routed to the right publication platforms in a timely way, so that they are consistent with one another, and ensure compliance to permit continued trading.