2021/12/14 by Takuji Matsumoto, Derek W. Bunn, Yuji Yamada · 1 voice
Engineering · #Electric Power System Optimization #Energy Load and Power Forecasting #Smart Grid Energy Management
paper · pdf · doi:10.1109/tpwrs.2021.3135334
openalex publication_date 2021/12/14 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
The design of electricity imbalance pricing mechanisms is internationally controversial. Policies on whether to permit virtual trading for market participants and whether, or how, to impose penalty incentives on the imbalance volumes vary widely. Furthermore, market designs vary depending whether the imbalance prices are obtained directly from real-time trading or based upon the offer and demand functions from the day-ahead energy markets. This paper develops an analytical framework for evaluating designs for imbalance settlement mechanisms and we have selected the Japanese electricity market, which has undergone several revisions in its imbalance mechanism, as a good example to assess such variations. We develop a predictive approach for the imbalance volumes and price densities using two-step quantile regressions and derive a new trading optimization for a virtual trader's arbitrage position. We construct supporting models to estimate prediction errors for renewable power and demand as drivers of imbalance volume. The empirical analysis reveals that even in a mechanism with imbalance penalties based upon day-ahead reference prices, virtual trading may still be beneficial to market participants as well as to the system operator. We also find that greater market transparency is crucial for increased benefits. The insights generalize beyond the Japan case study.