Wind power balancing costs for different size actors in the Nordic electricity market

This paper presents the imbalance costs for wind power for different size actors in the Nordic electricity market. The calculations are based on real data or wind power production and predictions day-ahead in Finland. Wind power predictions are made using meteorological wind speed forecasts and a time-series model that uses past observations of production for parameter estimation. The smoothing effect of reduced forecast errors is shown for the 24 sites used in calculations: for a single site 45-75 % of yearly production is not forecasted right. For the total of 24 sites the yearly production error is about 30 % which clearly shows the beneficial aggregation effect. The imbalance cost from the Nordic electricity market is 1.8-4.4 €/MWh for single site producers. The costs of balancing are decreased to 1.7-2.4 €/MWh when calculating for different clusters while the cost for whole Finland (24 sites) was 1.3 €/MWh. A simple calculation for the different imbalance payment rules shows that the one price system for imbalance payments will benefit the wind power producers at low penetration levels compared to the two price system that is used in Nordic power system today. When penetration level of wind power is increased so much that wind power will be contributing to net system errors with 70-80 % of production, there is not much difference in costs for different imbalance pricing systems.