Poland’s balancing market reform: What short-term power traders can expect

Short-term power traders in Poland will hold on to their laptops throughout the weekend as their operations undergo a significant transformation: the balancing market reform.

This article reflects on what the change entails and ways to be prepared. For firsthand experience, we give the floor to Małgorzata Kucharska, Managing Director at GEWI Sp. z o.o., an innovative electricity trading company specializing in renewable energy sources. A subsidiary of GEWI GmbH (part of the GETEC ENERGIE Group), GEWI has more than 4.000 MW of installed wind power, photovoltaic and biogas capacity in its portfolio.

The reform in context

The new terms to regulate the power balancing system in Poland, developed by the Polish TSO Polskie Sieci Elektroenergetyczne S.A. (abbreviated PSE), were approved in September 2023 and will enter into force on June 14th, 2024. Part of the gradual harmonization of the European energy market, the reform brings a shift from hourly to 15-minute intervals for tracking and settling imbalances in supply and demand, among other changes.

Considering Poland’s current share of intermittent renewables, the timing might not be too inconvenient. According to an Ember report, Poland increased its share of wind and solar to a record 21% in 2023 but still lags behind EU peers. In 2023, the country generated nearly three-quarters of its electricity from fossil fuels, down from 79% in 2022. A considerable part of its coal and pump-hydro capacities is operated by PGE, a state-owned public power company.

Małgorzata Kucharska shares some nuance on the solar acceleration of renewable energy installations in Poland:

“We see a big development in solar; on the one hand, it is very good, but on the other, we now often have negative prices. As a result, we had many instances of non-market based re-dispatch in the last month.”

Development is also possible in the wind domain:

“In wind energy, we haven’t had significant new developments since 2016. However, we expect a new regulation allowing wind farms to be built 500 meters from residential buildings instead of 700, which will open possibilities for new projects. Replacing the 10H rule in favor of 700 meters in 2023 was already a step in the right direction, but not enough.”

Price risks

As mentioned, one of the main changes in the balancing market reform is the imbalance settlement period going from 60 to 15 minutes. This increased precision should help better balance the grid, but more frequent adjustments will create a “slightly increased risk of imbalance”.

Balancing renewable portfolios over 15 minutes is harder than on an hourly basis, requiring a more accurate generation forecast. Possible volumetric risk posed by forecast errors, combined with a likely risk-averse behavior of traders on the market during and shortly after the change, might result in price risk.

However, it is challenging to foresee the exact effect. Małgorzata explains:

“We carried out analyses of various market scenarios using our machine learning-based price forecasting models; more price volatility is to be expected, but it’s difficult to predict how it will all impact balancing costs. We anticipate more developments on the intraday market, which is not very liquid in Poland at the moment.”

She goes on to emphasize the importance of intraday trading in this context:

“It’s possible that balancing costs will rise, but we have the possibility to trade on the intraday market to optimize our portfolios, so I hope that we will have control over these costs.”

Małgorzata further explains the new calculation of the imbalance settlement prices, a single pricing mechanism:

“When the market is over-contracted, the price is the lower of the two FIX II and Balancing Market Price. When the market is under-contracted, the settled price will be the higher price of the two. Everyone will be settled at this price, regardless of whether they buy or sell energy.”

Operational impact

On the operational side, BRPs must make quite a few adjustments to prepare for this reform. The team at GEWI have been working on the preparations for months:

“The reform requires a lot of changes in our analytical tools, scripts, everything. We need to import metered data from the TSO and DSO platforms, which are changing to 15-minute periods. Our WIRE-System provider is also changing the system to cope with the reform.”

Despite all the effort, Małgorzata highlights why it is impossible to be perfectly prepared:

“Our scripts, which rely on data/reports from the TSO website, are still in their test version because the website has not been completely updated yet. Furthermore, each DSO in Poland has its own platform for metering data, and while some have published example data, others have only sent us an email containing an example. We have to stay flexible.”

Team up

Małgorzata thinks the coming weeks will be a bit “chaotic,” but things will eventually settle. She mentions that having colleagues in Germany, already accustomed to the 15-minute settlement period, has been helpful, as has the support of Dexter’s forecasting solutions.

It might be a good time for short-term traders in Poland to consider advancing their tactics with a knowledgeable partner and more sophisticated technologies.

At Dexter Energy, we’re no strangers to market updates (such as the roll-out of PICASSO in Italy) and 15-minute imbalance prices (in other European countries). We provide automated bidding strategies based on price forecasts, informing strategic trades on the day-ahead or intraday.

Our models are retrained daily and, thus, quick to adapt, reliant on the latest data, and not prone to the biases and concerns a human may have in times of change. And, our solutions are available via an easy-to-use API. Reach out to see how we can help you.

* Fix II refers to second fixing, i.e., the second, coupled auction, through Nordpool/Epex/TGE, as opposed to the first fixing (the local auction).