Dispatch Balancing Costs

Dispatch Balancing Costs

Dispatch Balancing Costs” (DBC) refers to the sum of Constraint Payments, Uninstructed Imbalance Payments and Generator Testing Charges. The Transmission System Operators (TSOs) are responsible for forecasting and managing Dispatch Balancing Costs. The costs of DBC are recovered through the Imperfections Charge, which is levied on suppliers in the Single Electricity Market (SEM) by SEMO. The Imperfections Charge also recovers the net cost of energy imbalances and Make Whole Payments (see Trading and Settlement Code clause 4.155 for more information). The diagram below illustrates how these are related.

Constraint Payments

The TSOs, to ensure continuity of supply and the security of the system in real time, have to dispatch some generators differently from the SEM market schedule. Constraint payments keep generators financially neutral for the difference between the market schedule and the actual dispatch.

Constraint costs arise to the extent that there are differences between the market determined schedule of generation to meet demand (the ‘market schedule’) and the actual instructions issued to generators by the TSOs (the ‘actual dispatch’).  A generator that is scheduled to run by the market but which is not run in the actual dispatch or run at a decreased level is ‘constrained off/down’; a generator that is not scheduled to run or runs at a low level in the market, but which runs at a higher level in reality is ‘constrained on/up’. 

In order to balance supply and demand, a generator that is constrained off/down will always result in other generators being constrained on/up and vice versa.  Under the Constraints Payment mechanism in SEM, the units that are constrained off/down have to pay back a constraint payment (negative) and the corresponding units that are constrained on/up receive a constraint payment (positive).  As the price of the constrained on/up unit is generally greater than the constrained off/down unit, there is always a net cost associated with constraints.

The actual dispatch of generation is based on the same commercial data as used in the production of the market schedule.  However, because the TSOs must take into account the technical realities of operating the power system, the actual dispatch will deviate from the market schedule to ensure security of supply, and hence constraints will arise.  The main categories of issues that can lead to a difference between the market schedule and actual dispatch and hence constraint costs are described below.

Transmission

In order to ensure the safe and secure operation of the transmission network, it may be necessary to dispatch specific generators to certain levels to prevent equipment overloading, voltages outside limits or system instability.  Generators may be both constrained on/up or off/down thus leading to the actual dispatch deviating from the market schedule, as the market schedule does not account for any transmission constraints. The North South tie-line, which is treated as a transmission line in the SEM, may also have a significant effect on the actual dispatch of generating units, due to the flow limitations between the two TSO jurisdictions. 

Reserve

In order to ensure the continued security and stability of the transmission system in the event of a generator tripping, the TSOs instruct some generators to run at lower levels of output so that there is spare generation capacity available (known as reserve) which can quickly respond during such tripping events.  To maintain the demand-supply balance, some generators will be constrained down while others will be constrained on/up, again leading to the actual dispatch deviating from the market schedule, which does not account for reserve requirements.

Perfect Foresight

The market schedule of generation, which is used for settlement, is produced after real time (ex post) by the market software using known actual demand, wind output and generator availabilities. However, as the TSOs do not have this perfect foresight, they must plan and operate the system to account for possible variations in these parameters.  For example, if a generator is dispatched to synchronise by the TSO but fails to synchronise, this is ‘known’ by the market scheduling software and it will take into account the unavailability of this unit in the production of the market schedule.  The TSOs, however, will respond to the event in real time by re-dispatching fast-acting generation to maintain system security until the affected generator is available to synchronise onto the system.  The market schedule and actual dispatch will therefore differ.

Market Modelling Assumptions

Due to mathematical limitations, approximations and assumptions in the market schedule software, the market schedule will not always be technically feasible.  This is mainly due to a number of generator technical capabilities and interactions not being specifically modelled (e.g. the market software assumes that generators can synchronise and reach their minimum load level in 15 minutes, whereas in reality this may take much longer; the market software assumes a single generator ramp rate, whereas in reality many generators have multiple ramp rates).  In actual dispatch, the TSOs (and generators) are bound by these technical realities and so the market schedule and actual dispatch will differ.

Uninstructed Imbalance Payments

All dispatchable generation is required to follow instructions from the control centres within practical limits to ensure the safe and secure operation of the power system.  Failure to do so will lead to increased constraint costs for the TSOs as they re-dispatch other generation at short notice to account for the mismatch in actual and instructed generation and could, at worst, lead to system blackout. In SEM, the Uninstructed Imbalance Payments mechanism, as set out in the Trading and Settlement code, provides economic signals to ensure that dispatchable generation follows its instructions within acceptable practical limits.

Testing Charges

Testing of a Generator Unit requires out of merit running which increases constraint costs. A charge is levied on each Generator when testing through the Testing Charges mechanism in the SEM to recover this net increase in constraint costs.