A comparison of imbalance settlement methods of electricity markets

In the regulated electricity market the difference between the demand forecast and the actual demand is balanced by additional generation from the cheapest available source after network security is taken into consideration. The electricity price to supply this difference in demand forecast error is already pre-fixed through the bulk supply tariff. In deregulated markets many of the current market structures rely on bilateral contracts for trading. The financial settlement for this imbalance energy is different from the normal contract settlement. In the ideal case the imbalance should be zero but this is almost impossible as the contracted values are usually based on demand forecasts and which contain errors. The imbalance settlement could be viewed as an ex post mechanism. The imbalance settlement thus depends very much on the electricity prices of the real time balancing market, and on the markets structure. This structure can differ from one country to another and could even be different for different markets within the same country. This paper reviewed two different imbalance settlement systems and a comparison will be given at the end.