Balancing group

Lecture content:

1. Introduction
2. What is a balancing group
3. Electricity imbalances
4. How does a balancing group work
5. How to choose a balancing group
6. Conclusions
7. Active links (NPAs, standards, resources)
8. Glossary
9. Questions for self-testing

1. Introduction

The Ukrainian energy market includes several key segments: wholesale market, retail market and balancing market.
The balancing market is an integral part of the overall structure of the electricity market and performs a critically important function – ensuring a balance between electricity production and consumption in real time.

Similar to the bilateral contract market, the day-ahead market (DAB) or the intraday market (IDM), the balancing market also buys and sells electricity. At the same time, its difference lies in the fact that here the transactions are not planned, but corrective in nature — they are aimed at regulating deviations from the planned production and consumption schedules.

3. What is a balancing group

A balancing group in the electricity market is a voluntary association of participants (producers, suppliers, consumers), which is created to ensure a balance between the production and consumption of electricity.
The main purpose of its creation is minimizing the costs of regulating imbalances and simplifying the interaction of participants with the market operator.

Key advantages of a balancing group:

• Reduction of costs for imbalances.
  One participant (coordinator) takes responsibility for the balance of the entire group, which allows optimizing the costs of settling deviations from the forecasted volumes of production or consumption.
• Simplification of interaction.
  Instead of each participant working separately with the system operator, an authorized person does this on behalf of the entire group.
• Transparency.
  Balancing groups provide for transparent calculations and financial audit, which contributes to a fair distribution of costs and responsibilities between participants.

Thus, a balancing group is an effective tool for optimizing the operation of the electricity market and increasing its efficiency.

JSC “Energy Company of Ukraine” (ECU) is a national energy trading company, 100% owned by the state. Despite its relatively short history, it is already among the top three among:

• energy traders,
• electricity suppliers,
• traders of “green” generation.

ECU cooperates with producers of renewable energy sources, purchases electricity from them and supplies it to end consumers. In addition, the company is one of the leaders in import-export operations and forms the largest balancing group in Ukraine, the client portfolio of which reaches almost 10% of the country’s gross domestic product.

The ECU balancing group unites medium and large market participants, which makes it possible to compensate for a significant part of the imbalances within the group. By compensating for multidirectional imbalances, participants can sell and buy surplus or deficit electricity not at penalty prices, but at market conditions, which provides significant savings.

3. Electricity imbalances

Electricity imbalance is the difference between the planned and actual volume of electricity purchase or sale.

Producers and consumers are obliged to eliminate their imbalances through the balancing market, but this usually happens at unfavorable prices.

Unofficially, the balancing market is called the “punishment market”, because:

• prices for imbalances differ significantly from market prices;
• for companies, imbalances can lead to serious financial losses.

Types of imbalances

1. Negative imbalance – when actual production is less than planned.

Example: the generation planned to produce 10 MW, but actually produced 6 MW, but sold 10 MW to customers.

A deficit of 4 MW is created, which will have to be bought back from NPP Ukrenergo at an inflated price.

The difference in cost can be from 30% to 300% above the market price.

2. Positive imbalance – when actual production exceeds planned.

Example: a company produced 10 MW, but sold only 6 MW.

The remaining 4 MW will have to be sold to NPP Ukrenergo at the price of positive imbalance.

In this case, the cost is usually significantly lower than the market price.

Xis responsible for imbalances

Each market participant can be a balance responsible party (BRP).

If the company is not part of the balancing group, it is independently responsible before NPC Ukrenergo.

Independent participation in balancing often leads to significant financial losses due to high prices for imbalances.

4. How does a balancing group work?

Electricity market participants can operate in two formats:

1. Independently as a balance responsible party (BRP) – each participant is responsible for its own imbalances directly before NPC Ukrenergo.
2. As part of a balancing group – the imbalances of the group participants are partially compensated within the association, and the remaining volumes are sold or purchased at the market price.

Who can be a member of a balancing group

• Generating companies;
• Electricity suppliers;
• Traders;
• Aggregators (associations of small generating units or consumers).

How to join a balancing group

• Sign a standard agreement with a balancing group group;
• notify NEC Ukrenergo about joining;
• within 7 business days the company will be registered as a member of the balancing group.

Changing the balancing group is just as simple: just sign a new contract and submit an application to NEC Ukrenergo. The transition occurs without a transition period.

Main benefits for balancing group participants

• Mutual compensation of imbalances – deficits of some participants are compensated by surpluses of others.
• Reduction of financial losses – imbalances are covered at the market price, and not at the “punitive” tariffs of the balancing market.
• Simplicity of interaction – the group coordinator represents the interests of all participants before NPC “Ukrenergo”.
• Efficiency – the more participants in the balancing group, the higher the level of optimization of imbalances.

The balancing group allows you to reduce costs, simplify administration and reduce risks for companies in the energy market.

5. How to choose a balancing group

Today, there are about 19–20 balancing groups operating in the Ukrainian electricity market, consisting of over 500 participants.

Among the largest is the balancing group of the State Enterprise “Guaranteed Buyer”, but it was created artificially to fulfill obligations under the “green” tariff, so it cannot be considered market-based.

Most other groups are small and created for a limited number of participants. This means:

• joining them can be difficult (limited access, strict conditions),
• their level of imbalance optimization is usually low.

What to pay attention to when choosing a balancing group:

1. Group size – the larger the group, the higher the level of imbalance optimization.
2. Number of participants – a large number of players with different specifics reduces risks.
3. Nature of imbalances – a key, but often ignored factor.

• For example, if all participants in the group are solar stations, then their imbalances will be synchronous (dependent on the weather, time of day). As a result, the group will not be able to effectively optimize deviations.
• Instead, the diversity of generation sources (nuclear, heat, wind, biogas, solar) ensures balance and better compensation of deviations.

Example: EKU balancing group

• It consists of more than 50 participants: nuclear, thermal, wind, solar and biogas generation, as well as distribution system operators.
• Optimization effect:

• negative imbalances – more than 86%,
• positive imbalances – more than 60%.

• Financial result: for state-owned companies-participants, the economic effect of the group’s work has already reached 1.4 billion UAH and growing every day.
• Advantages of EKU:

• the largest balancing group in Ukraine,
• high level of optimization,
• modern service and analytical support,
• personal managers and constant online communication with clients.

The optimal choice of a balancing group is not only the size and number of participants, but also the diversity of their generation. It is the combination of different types of sources that allows you to minimize losses and guarantee economic effect.

6. Conclusions

• Imbalances are one of the most expensive phenomena in the energy market.
• A balancing group is a tool that allows you to minimize these losses.
• A large and diverse group of suppliersprovides the best optimization.
• ECU has the largest balancing group in Ukraine, which is an example of an effective model.

Active links

• Law of Ukraine “On the Electricity Market” (Vedomosti Verkhovna Rada (VVR), 2017, No. 27-28, p. 312): https://zakon.rada.gov.ua/laws/show/2019-19#Text
• On approval of the Transmission System Code (Resolution of the National Commission for the Regulation of the National Energy and Power Sector of Ukraine No. 309 of 14.03.2018) : https://zakon.rada.gov.ua/laws/show/v0309874-18#Text
• On approval of the Market Rules (Resolution of the National Commission for the Regulation of the Energy and Utilities Sector No. 307 of 14.03.2018) https://zakon.rada.gov.ua/laws/show/v0307874-18#Text
• On approval of the Rules of the day-ahead and intraday markets (Resolution of the National Commission for the Regulation of the Energy and Utilities Sector No. 308 of 14.03.2018): https://zakon.rada.gov.ua/laws/show/v0308874-18#Text
• JSC “Energy Company of Ukraine” (official website): https://ecu.gov.ua/
• NEC “Ukrenergo” – information about the balancing market: https://ua.energy/uchasnikam_rinku/balansuyuchyj-rynok-ta-rynok-dopomizhnyh-poslug/