Report for Energiforsk

New balancing market rules increase the need for predictable price signals

Our experts Ksenia Tolstrup,, Bob Hebb, and Carlos Úbeda performed study on balancing markets and imbalance settlement for the independent Swedish think-thank Energiforsk. In their “Study on passive balancing and publication of price information close to real time”, they analyse their impact on the system and Swedish market parties since Sweden has been affected by extreme imbalance price volatility – especially since the launch of the mFRR Energy Activation Market in March 2025. What are some of its findings?

Sweden’s power market has become increasingly volatile as new balancing markets and 15minute imbalance settlement periods have been introduced. Since the Nordic mFRR Energy Activation Market went live in March 2025, imbalance prices – particularly in southern Sweden – have shown sharper and more frequent price spikes. A combination of a transition to Area Control Error (ACE)-based balancing and congestion between Swedish price zones meant that even relatively small imbalances quickly translated into very high imbalance prices.

According to a new report from Energiforsk’s FemD programme, publishing more and timely data on system imbalances would already be an important improvement. Yet alone it is sufficient. For market participants to be willing to actively contribute to system stability, interpretable and predicable price signals, scheduling flexibility closer to real time and sufficient intraday market liquidity are some of the key factors. Otherwise, the level of risk for balance responsible parties (BRPs) becomes too high to act, even when imbalance information and flexibility are in principle available to offset system imbalances.

The report analyses how these changes affect BRPs – companies that are financially responsible for keeping their portfolios balanced. The key conclusion is that market design effectively drives behaviour: imbalance pricing and the components included in it, scheduling requirements, available information and intraday market liquidity determine whether companies choose to maintain strictly balanced portfolio positions or instead respond to imbalance price signals through socalled “passive balancing”.

International experience from, among others, Belgium and Germany shows that passive balancing can contribute to greater system stability in power systems with a high share of renewable energy, without increasing contracted balancing capacity volumes. However, the report stresses that these positive effects are not automatic and linked to the additional factors mentioned above.

In Sweden, the potential benefits are constrained by the relatively early gate closure of the intraday market and, in the next few years, by the expected accession to the European balancing energy platforms, PICASSO and MARI, which is likely to make Swedish imbalance prices more sensitive to international dynamics well beyond the Nordic region. Essentially, this “internationalisation” of the balancing energy markets and the direct link between balancing energy and imbalance prices risk weakening the link between local system conditions and imbalance price signals, making it more challenging for market parties to interpret or predict.

As the electricity system becomes increasingly weather-dependent and decentralised, the report concludes that finding the right balance between explicit and passive balancing will be crucial. The objective should be to create the right incentives to offer flexibility through passive balancing without generating disproportionate risks on market participants or undermining confidence in imbalance price signals.