Go-live of PICASSO in the Netherlands: What is the impact on imbalance prices?

In just a few days, Dutch Transmission System Operator (TSO) TenneT will join the European cross-border balancing platform PICASSO, making the Netherlands one of the first countries to go live after Italy suspended its participation.

TenneT has indicated that the accession is planned for the week of October 14th, without specifying the exact date. In anticipation of PICASSO, the Dutch Authority for Consumers and Markets (ACM) has recently published its decision on the changes in balancing rules.

In this article, we review existing documentation to assess TenneT’s approach to joining PICASSO and analyze the potential impact on Dutch imbalance prices. Given current uncertainties, our conclusions are preliminary but aim to provide valuable insights for short-term power traders.

PICASSO’s implementation to date

PICASSO (Platform for the International Coordination of Automated Frequency Restoration and Stable System Operation) is a platform that optimizes automatic Frequency Restoration Reserve (aFRR) activation across borders. Part of a broader EU harmonization project, it aims to improve the efficiency and stability of the power system by enabling real-time balancing of supply and demand among member states.

Participation in PICASSO affects the formation of imbalance prices in two ways:

• Directly, through its influence on the activation of balancing reserves and the subsequent price determination.
• Indirectly, through the necessary amendments to the local imbalance pricing methodologies.

This effect, combined with the interplay between PICASSO and the different balancing philosophies employed by the TSOs, has led to varied outcomes so far.

The Czech Republic, Austria, and Germany joined the platform in 2022, leading to some price fluctuations, but largely without undesirable consequences. However, Italy’s experience in 2024 was less smooth – Terna had to suspend participation after PICASSO’s algorithm caused unexpected price spikes that created financial risks for market participants. In a previous article, we covered the short-term traders’ perspectives on negative prices caused by PICASSO.

Following Terna’s withdrawal, TenneT delayed its integration from July to this month. Belgium and the Baltic states have also postponed their implementation. Apparently, PICASSO went live in Denmark on October 9th.

TenneT’s approach to the imbalance price calculation

TenneT has adopted a somewhat different approach compared to countries like Italy or Germany regarding how the PICASSO platform influences the domestic imbalance price.

Firstly, the highest-priced activated balancing energy bid within the Netherlands will remain the basis for the imbalance price calculation.

With PICASSO, aFRR activation happens not only domestically but may also occur across borders (for example, from Germany for the Netherlands). Unlike other members, TenneT chooses not to rely on PICASSO’s Cross-Border Marginal Price (CBMP) to determine the price for aFRR activation. Instead, it maintains its imbalance price logic based on domestic activation. This means that when a bid from Germany is activated to address an imbalance in the Netherlands, it does not directly influence Dutch imbalance price calculations.

Due to this approach, we do not expect the Netherlands to experience extreme bid ladders from other countries directly impacting its imbalance prices, as seen in Italy. Our assumption is that TenneT’s aim with this calculation is twofold: to ensure that the Dutch imbalance price remains representative of the domestic situation and that the real-time grid information (the so-called 1-minute price signal) accurately reflects the imbalance price, as the CBMP is only published after the end of the 15-min settlement period.

The dampening effect on imbalance prices

On average, we expect PICASSO to have a dampening effect on Dutch imbalance prices. This effect can occur if, for example, the Netherlands is short on electricity and imports power from Germany. In this case, the combination of both merit orders allows for larger imbalance volumes to be absorbed without leading to extreme prices.

Nevertheless, this dampening effect might be less likely during peak demand periods, particularly in the evening when leftover cross-border capacity is scarce.

We also anticipate situations when the imbalance price could be amplified. If, for instance, both the Netherlands and Germany are short and the Netherlands exports energy to Germany at a comparatively lower price, the additional demand could increase Dutch imbalance prices​.

PICASSO and dual pricing

In the Netherlands, regulation state 2 (R2), or dual pricing, occurs when the TSO activates both upward and downward regulation volumes within the same program time unit (PTU) to balance the grid. When this measure is activated, the imbalance prices are split in order to penalize positive and negative imbalance positions.

The impact of PICASSO on the occurrence of dual pricing depends on how TenneT will treat the volumes activated through PICASSO from outside the Netherlands.

If the activation of “foreign” aFRR is not taken into account when determining R2, as is already the case with IGCC volumes (International Grid Control Cooperation, or imbalance netting), the occurrence of R2 is likely to decrease on average.

However, should the activation of “foreign” aFRR be considered when determining R2, then PICASSO may not have a direct impact on its occurrence.

A new scarcity component

TenneT will also introduce a scarcity component to ensure sufficient incentives for market parties to balance the grid in moments of extreme scarcity. This component will be triggered when all aFRR and emergency reserves are activated, and the imbalance is still not fully covered. The rollout is expected in July 2026.

This mechanism involves the linear extrapolation of the price of the last 100MW of the bid ladder. Thereby, the maximum price is capped at the Value of Lost Load (at ~€68,000/MWh), while the minimum price is capped at -€15,000/MWh.

While this component could theoretically drive imbalance prices to unprecedented highs in moments of extreme scarcity, it remains uncertain if and how frequently such situations will occur.

Overall impact

In summary, TenneT’s methodology appears to balance cross-border participation with the commitment to maintaining domestic price stability. Although uncertainties remain, our analysis suggests the following main points:

• PICASSO’s implementation will likely reduce Dutch imbalance prices on average.
• Extreme bid ladders from other countries are unlikely to directly impact Dutch imbalance prices.
• TenneT’s new scarcity component has the potential to cause significant price spikes, but the likelihood and frequency are unclear.