Prediction Errors and Balancing Costs in Finland Using Short Term Prediction for Different Geographical Areas

In order to participate to the Nordic Electricity market, wind power producers have to forecast their production 12-36 hours ahead. After the realized productions are certain the producer must deal with the prediction errors in the balance settlement. The imbalance prices are formulated in the Nordic balancing (real-time) market called Regulating Power Market. This paper studies how much the pooling of wind power generation will lower the imbalance costs and prediction errors for different sizes of market actors. The main metric for analysing the benefit of pooling is balancing cost/MWh for the whole yearly generation. Based on synchronous data on imbalance prices and wind power forecasts, balancing costs for a single site were 2.4-3.1 /MWh for years 2010-12, whereas balancing costs for aggregated wind power production on the coastline of Finland varied between 1/MWh and 1.5/MWh. Thus, balancing costs can be halved by pooling the wind power production from wide geographical area instead of bidding production from a single site, for current market structure. The imbalance prices have varied from year to year, and the results show that the imbalance prices have a great impact on the balancing costs.