NEURC adopts pricing formula to correct imbalances in the electricity market

February 29, 2020

The National Energy and Utilities Regulatory Commission (NEURC) has adopted a new electricity pricing formula that will correct imbalances in the market. The formula, proposed by the USAID Energy Security Project (ESP), creates better incentives for traders and will reduce costs across the market.

Recently, liquidity shortages (or surplus) in the day-ahead market have caused major price distortions. These imbalances are not caused by natural market movements; they come from poor incentives for traders, who wait to buy or sell until the price is right. The Guaranteed Buyer and Energoatom, who must continue buying high-priced energy to carry out their public service obligation, are losing money, as are power generators. This situation is not sustainable.

ESP experts proposed a solution: a formula with two prices that creates an incentive for traders to balance their portfolios each day.

NEURC adopted this proposal on February 28. In addition to solving the pricing problem, it will improve operations in the day-ahead market and the balancing market and reduce costs for the transmission system operator.