How does it work: the imbalance market in the Netherlands

If you’re active in the energy market, you’ll often come across the term imbalance. But what does it actually mean, how is it managed, and how does Eddy Grid respond to it? We explain it in this article.

What is imbalance?

Electricity can’t be stored on the grid itself. That’s why supply and demand must always be exactly in balance. In the Netherlands, the imbalance market is an essential part of the energy system. It exists to correct the difference between the amount of electricity actually being consumed by households and businesses and the amount being produced by energy generators at any given moment.

When this balance is off, the consequences can be serious. Too much electricity can overload the grid and damage equipment. Too little electricity can lead to blackouts. That’s where the imbalance market comes in. When unexpected fluctuations occur in supply or demand, extra measures are taken via the imbalance market to restore stability.

How does imbalance arise?

There are several causes of imbalance. A common one is the fluctuation in output from renewable energy sources like wind and solar, which depend on the weather. Their production is difficult to predict, so they may suddenly inject too much or too little power into the grid. Imbalance can also occur due to unforeseen outages — whether in the grid itself or at a production site — causing actual production or consumption to differ from the scheduled forecasts.

How does the imbalance market work?

TenneT, the Dutch national grid operator, ensures that the power system stays in balance at all times. They do this by using so-called control and reserve capacity. If supply and demand are not equal, TenneT steps in by paying certain parties to increase their output (upregulation) or reduce their output or increase consumption (downregulation).

The prices paid or charged by TenneT for these actions are called imbalance prices. These are calculated every 15 minutes and depend on the direction of the imbalance (too much or too little power) and how much energy was needed to correct it. TenneT uses a bid ladder, ranking offers from market participants for up- and downregulation based on price. The price paid is determined by the most expensive accepted bid needed to restore balance.

In addition, TenneT adds a penalty component to the imbalance price. This is a financial incentive — or penalty — that encourages market participants to follow their planned energy schedules as accurately as possible. The better you match your forecast, the lower the risk of causing imbalance.

Each 15-minute block is classified by TenneT into a regulation state, which indicates what kind of correction was needed:

• Regulation state 1: There was not enough electricity. TenneT activated upregulation. Parties that delivered extra energy were rewarded.
• Regulation state -1: There was too much electricity. TenneT activated downregulation. Parties were rewarded for reducing output or increasing consumption.
• Regulation state 0: Supply and demand were exactly in balance. No intervention was needed.
• Regulation state 2: Both upregulation and downregulation took place within the same 15-minute window — often due to fast, unpredictable fluctuations in renewable generation.

Parties that cause imbalance must pay for it. Those that help restore the balance get paid. This system encourages all market participants to contribute to a stable grid.

How does Eddy Grid respond to imbalance?

Eddy Grid actively trades on the imbalance market — not just with batteries, but also with solar and wind assets. We buy and sell energy on the Day Ahead and Intraday markets. Based on expected production or consumption, we submit forecasts known as nominations for each battery, solar park or wind park.

If we intentionally deviate from those nominations — for example because it is more profitable to act on the imbalance market — we create imbalance. Our algorithm continuously evaluates whether it’s smarter to stick to the nominations or deliberately respond to real-time market signals instead.

The Eddy Grid algorithm always seeks the best balance between:

• planned trading (Day Ahead and Intraday),
• expected imbalance prices,
• and potential earnings from other balancing markets.

We are currently active as both a BRP (Balancing Responsible Party) and CSP (Congestion Service Provider). We’re also in the process of becoming a BSP (Balancing Service Provider) so we can soon participate in all Dutch balancing markets. This will allow us to better respond to fluctuations in the grid and generate even more value for our customers.