Balancing Group of KNESS Energy: experience of the BG participant

From the feed-in tariff to the free market. Today, more and more renewable energy (RES) producers are choosing this path. Why? The opportunity to clearly plan their financial future and optimize imbalances costs, in particular through participation in a balancing group.

What is the mechanism? The balancing group is an association of electricity market participants where:

First, the organizer of the balancing group is fully responsible for the electricity balance of the entire group against the transmission system operator;

Secondly, the electricity deficit of some group members is compensated by the surplus of others, which reduces the cost of imbalance settlement for all group members. This is a “win-win” interaction between all members of the balancing group, as it is possible to significantly optimize their own imbalances and clearly calculate the planning horizon of their business due to financial discipline in payments. The larger the balancing group, the more profitable the cooperation is for each member.

Background

Maintaining a balance between electricity generation and consumption is one of the key conditions for the stable operation of the power system. Since the reform of the electricity market, its participants and the transmission system operator have shared responsibility for the balance. How is this done? Market participants have to submit trading schedules for the purchase/sale of electricity to the market management system in advance, and in case of actual electricity consumption/output that differs from such a schedule, a surplus or deficit of electricity arises. The transmission system operator shall settle such deviations (imbalances) by buying/selling electricity from market participants to settle the imbalance.

In this case, the RES producers’ imbalance volume is always significant. This is because solar and wind generation are difficult to forecast due to their dependence on weather conditions. Consequently, generating companies cannot accurately forecast the output of solar or wind energy on a particular day to reduce imbalances to zero. Therefore, in order to reduce the volume of imbalances and settlement costs, it is reasonable for RES producers to find a balancing group with a large number of different types of participants (producers, suppliers, operators of energy storage facilities), as this allows to compensate for a significant volume of imbalances within the balancing group.

Balancing Group of KNESS Energy

Our company, KNESS Energy, a licensed electricity supplier and trader, as well as a provider of automated commercial electricity metering and forecasting services, was one of the first in the market to organize a balancing group of RES producers. KNESS Energy’s Balancing Group (BG) is an association of energy market participants within which our company is fully responsible for the electricity balance of all other market participants who are members of this association. Firstly, participation in the BG makes it possible to save up to 80% of the costs of imbalances settlement for the group members. Secondly, the company guarantees to purchase the volume of all electricity produced, acting as a trader and making timely payments. This is about financial discipline.

Win-Win Partnership: experience of the BG participant

One of the members of our Balancing Group is a group of renewable energy companies that manages 40.5 MW of solar power plants. Our cooperation began in 2020 as part of ACEMS services provision and forecasting generation from solar power plants, and in 2022, the Group joined KNESS Energy’s Balancing Group.

Valentyn Kurka, Director of the group of companies, which includes “Ekotekhnik-Nova Ushytsia” LLC, “Ekotekhnik-Dunaivtsi” LLC, “Soniachna Derazhnia” LLC, “Soniachni Dunaevci” LLC talked about the reasons for changing the approach to the sale of electricity from renewable energy sources and the experience of participating in the KNESS Energy’s balancing group.

“We have been operating in the energy market since 2017. We have invested in and built 7 solar power plants with a total capacity of 40.5 MW and sold electricity at a feed-in tariff until 2022.

Why did we decide to change the balancing group? February of 2022 ended with uncertainty about the future, and March showed the market’s financial unpreparedness to fulfill its obligations to participants. There were situations when the liability for imbalances exceeded the costs for electricity sold. So this led us to certain considerations such as “What to do next? “. As a result, we decided to change the balancing group. Despite the fact that the tariff is slightly lower than the green one, financial discipline and stability bring more significant benefits. It’s about planning cash flows, and, in general, a business needs to “feel” stability and be afloat. Therefore, this is a 100% advantage of being part of a balancing group.

How did we choose the balancing group?

We analyzed various offers in terms of commercial comparison and the objectivity of the financial results of the business model itself. To be honest, some of them offered fantastic numbers in their commercial proposals, but we realized that they were unrealistic and irrelevant in practice. So, it was quite difficult to choose the optimal balancing group. When choosing a BG, we took into account the company’s experience, the objectivity of future cooperation and listened to the opinions of our partners who had already been members of various balancing groups. That is why we chose KNESS Energy’s Balancing Group. The conditions that we were offered were indeed the tools and mechanisms that allowed us to move from a sustainable feed-in tariff to a free market.

Talking about the almost 2-year experience of cooperation with KNESS as part of the Balancing Group, it is primarily about the established financial discipline of payments for the entire volume of electricity supplied. And it is this financial discipline that allows us to clearly plan payments for our financial business or administrative expenses, as well as to forecast and manage the cash flow of future projects. Another major advantage is the openness, objectivity, quality, and efficiency of communication. Sometimes it seems that some specialists work for our company, or we work in KNESS,” says Valentyn Kurka.

Brief theory

Imbalance –  the difference between the amount of electricity produced/purchased and the amount actually consumed/sold by a market participant. As a result of the imbalance, the market participant has a surplus or deficit of electricity, which must be eliminated by buying/selling on the balancing market,  usually at unfavorable prices.

Balancing group –  an association of market participants established on the basis of an agreement on the establishment of a balancing group, within which the market participant determined by the agreement, which is a member of such an association, is responsible for the balance of electricity of all other market participants included in such an association (Law of Ukraine “On the Electricity Market” of 13.04.2017 No. 2019-VII).