As already mentioned in our blog of June 8, 2021, a stable electrical network is a network that is kept in balance at all times by regulating the frequency to a constant value of 50Hz. If there are surpluses or shortages of electricity, an imbalance occurs on the electrical grid. Since electricity cannot be stored, the transmission system operator ELIA, which ensures that electricity production and consumption are constantly balanced in Belgium, will compensate or penalize the balance responsible parties (also known as BRPs) connected to their transmission network according to the BRP's contribution to the balance on the transmission network. The BRP that receives compensation from or has to pay ELIA can be an energy supplier or trader, an energy producer, or a large consumer connected directly to the ELIA transmission grid.
At the start of a supply or injection contract, most energy suppliers take responsibility for their customers' imbalances and must therefore provide ELIA with a forecast for every quarter of an hour of the day for the total managed consumption and injections. This forecast must be as accurate as possible because ELIA invoices errors in this forecast to the supplier as imbalance costs.
Since January 2021, energy suppliers have been confronted with an abnormal increase in ELIA imbalance costs specifically for energy production by PV panels.
For an energy supplier that wants to offer its customers multi-year supply and injection contracts, it is therefore important that ELIA's calculation of imbalance costs is transparent and that the billing methodology remains stable.
However, since January 2021, energy suppliers have been confronted with an abnormal increase in ELIA imbalance costs specifically for energy production by PV panels. This could indicate a decline in the quality of forecasting by the various BRPs, forcing ELIA to use more and more expensive reserve capacity to keep the electricity grid in balance. However, the figures contradict this...
The graph below visualizes the evolution of the quality of Elia's forecasting for production from PV panels, knowing that the quality of the forecasting of the various BRPs follows the same trend. The higher the indicator, the more expensive the forecasting was (the underlying data are forecasts of production from PV installations prepared by ELIA and published on their website1). In our analysis, we compared the first nine months of each calendar year with the first nine months of 2021.
The margin of error in the BRP forecast for the first nine months of 2021 is virtually in line with that for the first nine months of the previous five years. However, the imbalance costs of PV installations in the first nine months of 2021 have become spectacularly more expensive compared to the first nine months of the previous five years, as shown in the graph below.
It has gradually become increasingly clear to all market players that something structural has changed in 2021 and that this has a significant impact on the financial profitability of PV installations.
ELIA has already confirmed that in 2021 it will award the cheap automatic reserve regulation, which used to be provided by large power plants, to Flexibility Service Providers, which are considerably more expensive to operate.
Another phenomenon we have observed is that ELIA activated the manual reserve system, which is considerably more expensive than the automatic reserve system, three times more often in 2021 than in 2020, despite the fact that the forecasts of the various BRPs did not show a higher margin of error than in previous years. A clear explanation from ELIA is still pending.
As a result, market conditions in 2021 have been impacted to such an extent for energy suppliers and owners of PV installations that the economic balance has been completely disrupted. The consequence of these increased imbalance costs will be a decline in the financial returns on energy generated by PV installations in the future.
