What is Regulatory state 2 and why is it important?
What is Regulation State 2?
Regulation State 2 is a specific condition in the Dutch electricity market where TenneT, the national grid operator, must both ramp up (increase electricity production or reduce consumption) and ramp down (decrease production or increase consumption) within a single quarter-hour (15 minutes). This occurs when the imbalance flips from a surplus to a shortage or vice versa within the same quarter-hour.
When does Regulation State 2 occur?
This situation mainly arises due to rapid and unpredictable fluctuations in electricity production and demand. Examples include sudden changes in solar and wind production or multiple market participants simultaneously adjusting production in response to price fluctuations.
Development over the past 20 years
- 2005–2015: Regulation State 2 was very rare.
- 2015–2020: Increased renewable generation (solar and wind) led to more frequent occurrences.
- 2021–2024: Significant increase in Regulation State 2 occurrences, with nearly 17% of all quarter-hours in 2024.
Year - % 15-minute windows in Regulatory State 2
- 2010 - 0%
- 2015 - 1%
- 2021 - 7%
- 2022 - 11%
- 2023 - 8%
- 2024 - 17%
Consequences for market participants
During Regulation State 2, dual pricing applies, meaning two different imbalance prices within the same quarter-hour:
- Positive imbalance (surplus): Parties typically receive lower or even negative prices.
- Negative imbalance (shortage): Parties often pay high prices for their shortfall.
This creates additional financial risks and uncertainties, prompting market participants (such as BRPs, aggregators, and energy producers) to act more cautiously.
Impact on pricing
Regulation State 2 causes significant price volatility on the imbalance market:
- Frequent extremely high prices during shortages.
- Frequent negative prices during surpluses.
This increases uncertainty for all market participants and necessitates precise forecasting and risk management.
Impact on system stability
Frequent occurrences of Regulation State 2 may lead to:
- Increased demands for deploying regulation and emergency reserves.
- Higher frequency deviations, posing challenges for maintaining a stable electricity system.
- Potential operational risks to the European electricity network.
Relevant policy and market developments
- European regulations (EBGL, SOGL): Harmonization of imbalance markets and frequency regulation.
- Dutch policy measures: TenneT introduced delays in publishing balance information to prevent abrupt market reactions (effective from December 2, 2024).
- Technological trends: Growth in flexibility and storage capacities, such as batteries, and demand response, which can partly mitigate the issue if properly coordinated.
How Eddy Grid handles Regulation State 2
Due to the increasing importance of accurately predicting Regulation State 2, Eddy Grid uses advanced algorithms to effectively anticipate this condition. This enables Eddy Grid to better respond to rapidly changing prices, significantly reducing risks and potential losses. Thanks to accurate predictions, Eddy Grid earned up to 94% more per MW on March 13, 2024, compared to other algorithms unable to predict this scenario as effectively. This provides Eddy Grid customers with a considerable advantage when actively trading in the imbalance market.