Imbalance funds allocation mechanism design in China's dual track electricity market environment: An agent-based modeling approach

As a key component of the balancing market, balance settlement links the physical layer of electricity balance with financial fund equilibrium. Imbalance funds pertain to costs that emerge from the balancing settlement process and, lacking a clearly defined responsible entity, require distribution or reimbursement among market participants. Under the current dual-track market system in China, the issue of imbalance funds has become increasingly prominent. The allocation of these funds is crucial, directly impacting the revenue of these participants and playing a pivotal role in ensuring a fair and efficient market. In this context, this paper, integrating the current dual-track electricity market environment in China, establishes a comprehensive framework to understand the balancing settlement process. Its aim is to explore effective methods for designing imbalance fund allocation mechanisms. Viewing through the lens of balancing service providers, the paper introduces an agent-based model for the balancing market. This model is proficient in capturing the complex dynamics of market behaviors and the resulting imbalance funds during the settlement process. Grounded in existing market regulations and the progressive evolution of China's spot market, the paper meticulously crafts various scenarios with unique imbalance fund allocation mechanisms. It demonstrates that a well-considered allocation mechanism can significantly enhance the efficiency of balancing market operations and reduce the overall costs of system balancing. Hopefully, the proposed framework and method will provide beneficial support and reference for the formulation of related policies and the design of market settlement mechanisms.