Continuous trading takes the Iberian power market by the horns

The Iberian electricity market has witnessed a significant shift over the past year. The introduction of three new intraday auctions (IDAs) has sparked heated debate. Market participants in countries like Germany and France criticised fragmented markets and low liquidity in auctions. In contrast, Spain, Portugal and Italy saw a consolidation of auctions, reducing their frequency while strengthening the case for continuous trading. 

Historically, Iberian market participants relied on frequent intraday auctions to rebalance portfolios, given the perceived immaturity of continuous trading. Auctions provided a centralised, transparent price formation mechanism, especially crucial for managing assets with operational constraints. However, for renewable-heavy portfolios, the flexibility to rebalance close to delivery was lacking. 

Now, with fewer auctions, continuous trading is becoming more liquid and relevant. Volume is shifting, allowing market participants to follow real-time price trends and rebalance portfolios incrementally. This shift is especially advantageous for renewable operators, offering an alternative to exposure from balancing risks. Continuous trading, despite initial concerns over liquidity, is proving to be a flexible tool in adapting to a market dominated by renewables and the volatility of zero or negative prices.

Adapting to green power

The Iberian Peninsula is seeing a paradigm shift in energy trading. Participants are embracing aggressive strategies, combining renewables with storage and occasionally curtailing renewable output for commercial reasons. These changes are set to ripple into the day-ahead market, which will adopt quarter-hourly granularity in 2025. This shift could drive more volume into continuous markets, further improving liquidity and reducing dependency on intraday auctions. 

IDA 1 (the intraday auction at 15:00 CET) previously served as the first opportunity to rebalance portfolios from hourly to quarter-hourly profiles in markets with quarter-hourly settlement but this will no longer be necessary once coupled markets begin clearing in quarter-hourly granularity.  

The most important intraday auction post-2025 will likely be IDA2, running at 22:00, offering a crucial opportunity to rebalance portfolios based on updated forecasts. This auction will benefit from recalculated cross-border capacities, providing fresh flexibility to market participants.

The balancing act of system stability

As renewables increasingly dominate the continuous intraday market, grid stability faces new challenges. Rising System Non-Synchronous Penetration (SNSP) – the percentage of electricity generated by non-synchronous sources like wind, solar and HVDC interconnectors – tests the limits of power systems. Unlike traditional synchronous generators, non-synchronous sources do not directly provide grid-stabilising inertia, complicating efforts to maintain stability. HVDC interconnectors, which use direct current to efficiently transmit electricity over long distances, often linking separate grids, add further complexity. On the Iberian peninsula, these dynamics are getting dangerously close to stability thresholds and demand innovative solutions.

Iberian transmission system operators may need to adopt similar strategies to some of their neighbours such as Ireland. Ireland’s TSO EirGrid is a world leader in operating with high SNSP with a limit of 75%. This was made possible through investments in technologies to help mitigate risks, such as synthetic inertia, synchronous compensators and advanced forecasting. Alternatively, procuring synthetic inertia services from battery assets could unlock new revenue streams while preserving renewable output from curtailment. 

As more battery assets enter the market, they can shift solar peak generation to higher-demand periods, enhancing both grid stability and market efficiency. 

Looking ahead to 2025

Continuous trading, beefed up by fewer auctions and increased renewable integration, offers a dynamic solution to the region’s challenges. Despite bearish power price forecasts due to ongoing renewable growth and limited interconnector capacity, improving liquidity opens opportunities for new revenue streams. As 2025 approaches, the market’s success will hinge on how participants and TSOs address liquidity, flexibility and stability.

This article originally appeared as a column on montelnews.com