Imbalance Costs of Wind Power for a Hydro Power Producer in Finland

This paper studies imbalance costs for wind power for different options of managing imbalances from a large producer point of view. In the Nordic electricity markets wind power producers at the markets sell their production based on day-ahead forecasts and pay imbalance fees for prediction errors. Most of the wind power production goes through Balance Responsible Players that have time to adjust the planned production levels or enter trades up to the hour of delivery. In this paper, the imbalance fees for dispersed wind power in Finland for year 2004 data are calculated with four options. The base case leaves all day-ahead forecast errors to balance settlement. Imbalance cost will then be 0.62 €/MWh for dispersed wind power in Finland. The crossover benefit of combining the imbalances of wind with imbalances of load and other production proves to be large, especially if the imbalances can be combined with those of load. Different options for active trade 3 hours before delivery or internal balancing show that it is only cost effective if trading close to spot market prices (at low wind penetration). A rough estimate shows that 400 MW of hydro power could provide internal balancing to cover 83…63% of the forecast errors of wind power, when wind power is 200…400 MW. The market value for this balancing service was 1.3 €/MWh with 2004 prices.