15 Dec 2023
Joe Bush

Trading in the continuous intraday market: how does it work?

The EPEX continuous intraday market is unique as it follows an order book format rather than an auction process. Trades are priced individually and cleared continuously, similar to a stock market. Prices for power in each delivery period change throughout the day, creating volatility that traders can take advantage of.

So, how does this market work?

The continuous market follows an order book format

In the continuous intraday market, traders constantly submit buy and sell orders to the exchange. As soon as a buy order is submitted with a price that exceeds that of an existing sell order, the trade is cleared at the sell price. A single buy order can also be matched to multiple sell orders and be cleared at the volume-weighted average price.

The continuous intraday market is run as an order book, with trades cleared as soon as buy and sell orders match

This process differentiates the continuous intraday market from other GB power markets, which are run in an auction format. In these other markets, traders submit bids and offers to the exchange throughout the day, and these are executed at gate closure for a standard market clearing price.

Prices in this market fluctuate throughout the day

Because the exchange settles trades individually continuously, prices for power delivery in a single period can vary widely.

Traders can identify arbitrage opportunities in this market by comparing developing prices to those secured in the day-ahead market, or by comparing intraday prices for multiple delivery periods with overlapping trading windows. They can also look at the recently cleared trades and the unfulfilled order book to determine a trading strategy. The entire order book is visible to trading parties.

Prices often trend in a particular direction approaching delivery. A late-arriving wind front or a large power plant tripping offline may create tight market conditions. In these conditions, prices can trend upwards, significantly approaching delivery.

Speculation on the system price drives intraday price development

In tight conditions, traders speculate on a high system price in response to the ESO’s cost to procure marginal generation. Traders bid on the continuous intraday market to cover their positions and limit exposure to the system price. Doing so increases demand and drives up prices.

Linkage to the system price likely contributed to the large price spread at 18:30 on March 7th 2023. Tight market conditions meant an expensive gas power plant was spun up in the evening peak. Approaching the delivery period, traders could see this plant bidding into the balancing mechanism at £1,950/MWh, increasing the likelihood of acceptance.

At the risk of paying a high system price, traders who were short instead covered their positions in the intraday market. This increased demand drove prices up to £1,200/MWh, but securing volume in this market was still cheaper than paying the system price.

Intraday prices follow the average bid or offer price in the Balancing Mechanism, depending on system length

Because of this linkage, the final traded price in the continuous intraday market tends to follow the average bids (prices to consume electricity or generate less) into the balancing mechanism when the system is long and offers (prices to consume less electricity or generate more) when the system is short.

Low volumes may limit trading opportunities in this market

The daily volumes in the continuous intraday market averaged 47GWh in 2023 - 56% lower than the EPEX day-ahead hourly market and 83% lower than the N2EX day-ahead market. Volumes are consistent day to day, with half of weekday volumes falling within 10% of this average. Trading opportunities may also be limited by the volumes and timing of individual trades in the market.

Firstly, volumes of individual trades are low as traders use the market to make minor adjustments to their positions before delivery. In the week commencing December 4th 2023, individual trade volumes averaged 1.3 MWh, and fewer than 1% were 10 MWh or above. An optimizer trading a large battery must complete multiple trades to secure the volume required for a profitable trading strategy.

Secondly, most volume trades close to delivery, limiting opportunities for optimizers to identify arbitrage opportunities throughout the day. The window for trading between delivery periods on this market is effectively limited to around 3 hours before delivery. Beyond this timeframe, the market’s liquidity is likely too low for battery trading.

Overall, trading opportunities resulting from price volatility in this unique market can be limited by the volumes and timing of individual trades. These limitations may affect the revenue opportunities for battery optimizers in this market, which we have previously explored.