The Impact of Electricity Market Reforms on Balancing Operations in Sweden : An Investigation of Balancing Costs and Imbalance Price Volatility on the mFRR Market in SE3

Sammanfattning

This thesis investigates the costs of balancing and the volatility of the imbalance price on the mFRR (manual Frequency Restoration Reserve) market in SE3 following the implementation of the 15-minute time unit on the intraday market and the start of the automated mFRR EAM, which both transpired in March 2025. To examine costs, data from Nord Pool of prices and activated volumes on the mFRR market in SE3 for six winters, defined as 1st of October to 31st of March, with the first winter being 2020-2021 and the last one being winter 2025-2026, have been used. To calculate the volatility of the imbalance price, a model was used which calculated the realized volatility, RV, the continuous component of volatility, CV, and the jump component of volatility, JV. The results found that the costs of the mFRR balancing operation for winter 2025-2026 has increased considerably, at around 85 million €, compared to previous winter averages at around 10 million €. The cost increases were due to increased imbalances prices, especially for up prices, and price spikes, as well as larger activated volumes. The volatility of the imbalance price had also increased significantly for winter 2025-2026 compared to the previous winters. The realized volatility, or “total volatility”, RV, is the component that increased the most, sometimes being almost 100 times larger than previous winters, while the jump component of volatility, JV, remained quite similar for winter 2025-2026 in comparison to previous winters. This means that while the volatility of the imbalance price has increased significantly, the price spikes and drops, which is what JV shows, is still relatively low. Both the increased costs and volatility of imbalance price coincides with the implementation of the market changes in March 2025, as March 2025 also show behavior that stands out in comparison to other winters and months. Thus, both these increases can be connected to the implementation of the 15-minute time unit on intraday market and the start of mFRR EAM. Exactly how much of the increases can be attributed to the respective market changes is harder to determine. Discussion on how the increased cost and volatility has implications for the future of balance market and market actors’ behavior was conducted and were suggested as topics for future research.