The balancing mechanism market centres the ESO’s primary tool for balancing GB’s electricity supply and demand in real time – the Balancing Mechanism (BM). This market primarily involves generator and supplier participants and is orchestrated through the ESO.
Generators enter the balancing mechanism electricity market by submitting “bid” or “offer” data into the BM, which describes the amount of electricity they can offer at their best price. An offer is a proposal to reduce demand or increase generation, while a bid is a proposal to increase demand or reduce generation. They then compete with other participants to provide electricity.
The ESO receives BM bid and offer data from generators 24/7, split into half-hour windows called settlement periods. Using our forecasted demand, the ESO reviews these submissions and takes the lowest price offered until demand is met. This system of low-cost preference is called merit order. Merit order determines which generation sources will be brought onto the system, starting with the options that can generate the most electricity for the lowest price. Moving down this list, we instruct generators to come online.
Merit order can vary in the short term, with preferred generators changing each hour. It also follows a seasonal pattern, with consumer behaviour (like use of heat) and resource availability (like the amount of sunlight needed to generate solar power) fluctuating throughout the year.
With so many factors dictating price and availability in the balancing mechanism market, it’s essential that the ESO facilitates and evaluates market participation in real time. This makes sure that we can maintain a reliable supply of electricity while operating the grid in the most efficient, cost-effective way for consumers.