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- The shift to 15-minute imbalance prices
- Negative day-ahead prices
- Liquidity in intraday markets
- IT systems under pressure
- A positive outlook on harmonization
- Exciting times ahead
Italy’s New Year’s resolution seems to be taking a giant stride toward harmonizing its power market with Europe. Starting January 1st, 2025, the country’s regulatory authority will roll out a major dispatching and balancing reform: TIDE (Testo Integrato del Dispacciamento Elettrico, or Integrated Text on Electricity Dispatching).
Among TIDE’s key changes are a shift from hourly to 15-minute intervals for imbalance settlement and the creation of dynamic bidding zones. While the complete set of changes will take several years to implement, the 15-minute imbalance price will be a fact from day one; the introduction of dynamic imbalance settlement price zones has been postponed from its original implementation on January 1st.
This overhaul aims to better reflect real-time market dynamics, supporting the integration of renewable energy into the grid while keeping balancing costs in check. However, it will likely also introduce fresh uncertainties and increased price volatility for short-term power traders.
To understand the impact of TIDE, we spoke with Giorgio Malattia, Power Trader at Nadara, and Lorenzo Palma, Intraday Trader at WET AG. We complemented their insights with an analysis by Andri Busch, Quantitative Trading Analyst at Dexter. Here is what we learned.
The shift to 15-minute imbalance prices
TIDE’s immediate impact will come from the shift in granularity for imbalance settlement, moving from hourly to 15-minute intervals. Lorenzo briefly explains the rationale:
“This product [the 15-minute imbalance price] is primarily created for renewable asset managers – like us – to better shape their power profiles. There’s no guarantee that gas plant operators will find the same value in it.”
The first challenge is the mismatch with the day-ahead market granularity. As Giorgio notes, while imbalance settlement will shift to a 15-minute basis from day one, the day-ahead market will retain hourly granularity during the first quarter of 2025. From April, the day-ahead price will shift to a dual publication model: hourly and quarter-hourly.
Lorenzo anticipates some turbulence as the market adjusts:
“Larger market players might stick with the hourly system for a while. Since they can effectively ‘move’ the market, their choices have a major impact. Expect some noise and big volatility in the beginning.”
Dexter Trading Analyst Andri Busch also expects higher volatility with TIDE’s rollout. He highlights that the rule will likely drive an increase in regulatory volumes due to the reduced opportunity to net out imbalances within the settlement period. For example, a surplus in the first 15 minutes, followed by a deficit in the remaining 45, can no longer be balanced over the full hour.
Additionally, equal distribution of sold volumes in the day-ahead market could create imbalances between quarter-hourly periods – imbalances that were not an issue under the hourly framework. This is intuitively the case for renewables; however, even conventional assets may struggle to adjust production plans to the lower granularity.
Negative day-ahead prices
According to Montel, TIDE introduces the option of offering generation capacity at below-zero rates on the power exchange. However, our interviewees note that bidding with negative prices on the day-ahead market was already possible (since the end of 2021) but rarely used, mainly due to Italy’s position as a net importer of electricity. Will TIDE change this practice?
Giorgio shares his perspective:
“With the higher granularity, we may have some specific market time periods with negative prices due to the oversupply of renewable generation with respect to demand. It’s something to explore.”
He also notes that TIDE introduces the possibility of bidding in blocks of combined hours on the day-ahead market, bringing Italy closer to the EPEX spot rules. Giorgio is curious about the results:
“Let’s see how much traders will use their imagination to bid with this option.”
Lorenzo adds comments on specific regions within Italy:
“We’re likely to see the impact [of negative day-ahead prices] in Sardinia and Sicily – areas where we currently see a lot of zero prices in the summer. Those zeros will likely turn negative next year – a scenario we’ll need to handle carefully.”
Our analyst noted that the new practice could open the door for curtailment strategies, especially with the 15-minute settlement system. In Lorenzo’s experience, renewable producers often approach curtailment with skepticism or may have Power Purchase Agreements (PPAs) that don’t allow it. He is, nevertheless, optimistic about the future:
“The discussion around curtailment is ongoing. Some owners may not be keen on this, but it is a needed solution. It’s just a matter of time.”
Andri’s take is that the same developments enabling curtailment also make imbalances harder to control. For example, if wind generation suddenly increases, it can flood the grid with excess power, driving prices even further into the negative.
Liquidity in intraday markets
TIDE also comes with implications for the intraday markets, which Giorgio explains:
“As of January 1st, intraday auctions will start with a 15-minute granularity. So, we have a mismatch between the results of the day-ahead and those of intraday auctions. It implies work for trading desks side to update their systems in order to face this mismatch.”
He further explains the impact on continuous markets:
“On the continuous market, we will have two separate order books per zone – one for hourly and the other for quarter-hourly products – which cannot cross-match. This means that, if trading on the hourly book, bids will be matched with hourly offers.”
Giorgio concludes with a warning:
“We might lose a lot of liquidity.”
Andri Busch finds the intraday market an interesting one to keep an eye on. Due to the 15-minute imbalance prices, imbalance volumes from solar and wind sources might be more challenging to manage. For instance, daily photovoltaic (PV) ramps – rapid changes in solar power generation due to weather patterns or sunset – will become more difficult to predict and control, creating greater opportunities and risks in intraday trading.
IT systems under pressure
The end of the year is typically a time for shifts in renewable energy portfolios, requiring IT systems to handle the upward or downward scaling of assets. Due to its timing, TIDE brings another big task for systems.
Lorenzo lays out the difficulty:
“For most companies, IT systems are set up for hourly settlement periods, and not everyone will be able to switch from day one. It will be a messy day.”
Giorgio explains how his team plans to handle the change:
“We will focus on the more essential things to avoid mistakes, and as we gain more clarity, we will start our strategies.”
A positive outlook on harmonization
The harmonization of European power markets has not been without complications. Italy’s experience with PICASSO is the best example. To wrap up our conversations, we asked interviewees how they viewed the harmonization project. We received positive feedback.
Giorgio Malattia told us:
“In the past, this transition was done without considering the regulatory peculiarities of each market, but things are going better now. The harmonization of rules helps energy flow better among countries and ensures more efficient use and production. “
Lorenzo Palma’s comment focused on the extra opportunities:
“Sure, new rules lead to inefficiencies at first, but it’s part of the process. Ultimately, more harmonization means more opportunities for us.”
Exciting times ahead
More will come with TIDE, such as dynamic macrozones, phasing out the standardized day-ahead price (the Prezzo Unico Nazionale, or PUN), and reorganizing ancillary services. Italy is also expected to join all European balancing systems, including re-entering PICASSO. Follow us for updates on these developments and their impact on Europe’s power markets.
At Dexter Energy, we’re equipped to help traders navigate market changes across Europe. Our machine learning foundation allows us to keep trading strategies agnostic to market shifts, ensuring our customers can stay ahead of the curve no matter the reform. You’re welcome to get in touch if you wish to learn more.