Electricity balancing encompasses all actions and processes, on all timelines, through which Transmission System Operators (TSOs) ensure, in a continuous way, the system frequency is within a predefined stability range as set forth in the Network Code on System Operation, and complies with the amount of reserves needed with respect to the required quality (Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing (NC EB or EBGL), Article 2(1)).

 

 

Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing, Article 2(1)

 

‘balancing’ means all actions and processes, on all timelines, through which TSOs ensure, in a continuous way, the maintenance of system frequency within a predefined stability range as set out in Article 127 of Regulation (EU) 2017/1485, and compliance with the amount of reserves needed with respect to the required quality, as set out in Part IV Title V, Title VI and Title VII of Regulation (EU) 2017/1485

 

Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast), Article 2(10)

 

‘balancing’ means all actions and processes, in all timelines, through which transmission system operators ensure, in an ongoing manner, maintenance of the system frequency within a predefined stability range and compliance with the amount of reserves needed with respect to the required quality

 

 

The 'Winter Energy Package' of December 2016 understands this term analogously (Article 2(2)(i) of the Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD) and Article 2(10) of Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast)).

 

In turn, the Commission Staff Working Document accompanying the document Commission Regulation of 23.11.2017 establishing a guideline on electricity balancing ({SWD(2017) 383 final}, p. 3) describes balancing as ‘the situation after markets have closed (gate closure) in which a TSO acts to ensure that demand is equal to supply, in and near real time’.

 

The said Commission Staff Working Document further explains (p. 7) that electricity balancing covers all actions performed by a TSO to ensure that total electricity demand is equal to ('in balance with') total electricity supply at any given moment.

 

The EU electricity market regulators understand the essence of the electricity system balancing in the same way (as actions and processes performed by a TSO in order to ensure that total electricity withdrawals (including losses) equal total injections in a control area at any given moment - ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2014, November 2015p. 204).

 

Balancing, being simultaneously performed in all control areas and between control areas, contributes to ensuring stability in a synchronous area.

 

Balancing mechanisms are not only technical arrangements set out to ensure system stability but also have implications on competition as procuring balancing services normally entails commercial arrangements with imbalances levied on the market through settlement mechanisms.

 

Balancing is thus essential to ensuring the well functioning of wholesale electricity markets, given its bearing on system security of supply.

 

 

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Commission Staff Working Document accompanying the document Commission Regulation of 23.11.2017 establishing a guideline on electricity balancing {SWD(2017) 383 final}, p. 14

 


The concept of balancing in electricity

 

Balancing refers to the situation after markets have closed ('gate closure') in which a TSO acts to ensure that demand is equal to supply. A number of stakeholders are responsible for organising the electricity balancing market:

 

- TSOs keep the overall supply and demand in balance in physical terms at any given point in time. This balance guarantees the secure operation of the electricity grid at a constant frequency of 50 Hertz. 

 

- Balance responsible parties ('BRPs') such as producers and suppliers; keep their individual supply and demand in balance in commercial terms. Achieving this requires the development of well-functioning and liquid markets. BRPs need to be able to trade via forward markets and at the day-ahead stage. They also need to be able to fine-tune their position in the same trading day (e.g. when wind forecasts or market positions change). 

 

- Balancing service providers ('BSPs') such as generators or demand facilities, balance out unforeseen fluctuations on the electricity grid by rapidly increasing or reducing their power output. BSPs receive a capacity payment for being available when markets have closed ('balancing capacity') and an energy payment when activated by the TSO in the balancing market ('balancing energy'). Payments for balancing capacity are often socialized via the transmission network tariffs, whereas payments for balancing energy usually shape the price that BRPs who are out of balance have to pay ('imbalance price').

 

The liberalisation of the electricity market introduced the concept of balancing as a competitive market, where the demand and supply for balancing services are met. Thus, the balancing market is characterised by the two core components: the procurement of balancing services and the settlement of imbalances...

 


According to Article 15(1) of the EBGL the following market actors are required to cooperate in order to ensure efficient and effective balancing:

 

1) TSOs,

 

2) Distributon System Operators (DSOs),

 

3) balancing service providers (BSPs) and

 

4) Balance Responsible Parties (BRPs).

 

In the balancing process the particular role is attached to BRPs, which are made financially responsible for their planned electricity generation and consumption.

 

The imbalances - representing the difference between the BRPs’ forecast and the actual consumption and production - must be settled with TSOs such that no power shortages or surpluses remain.

 

The ENTSO-E document of November 2018 “Electricity balancing in Europe, an overview of European balancing market and electricity balancing guideline” differentiates within the balancing the three main processes:

 

1) TSOs dimension their need for balancing reserves,

 

2) TSOs procure the required balancing capacity, and

 

3) TSOs procure balancing energy.

 

Further, the organisation of the balancing energy in Europe can be categorised into up to 4 steps:

 

1) frequency containment reserve (FCR),


2) imbalance netting (IN),

 

3) frequency restoration reserve (FRR):

 

- with automatic activation (aFRR), and


- with manual activation (mFRR),

 

4) replacement reserve (RR).

 

However, as the ENTSO-E argues, despite the wide variety of balancing arrangements in Europe, the following similar functioning principles can be identified within all balancing processes:

 

1) BSPs can send to their connecting TSOs the balancing energy standard or specific product bids or update the balancing energy price of their bids until the balancing energy gate closure time;


2) TSOs forward them to the relevant balancing energy exchange platform until the TSO energy bid submission gate closure time for the balancing energy product bids, together with the available cross-zonal capacities and relevant network constraints and TSO balancing energy demands;


3) the activation optimisation function (AOF) generates or accepts as input data the common merit order lists (CMOLs) and calculates and provides as output data – the selected bids to be activated, the netted demands, cross-border ex- change (if any) and used cross-zonal capacities;


4) based on the above data the TSOs request their BSPs to activate balancing energy bids according to the algorithm outcomes (some bids in this process might appear unavailable, due to network constraints, the bids can be activated for balancing purposes and system constraints purposes);


5) the information from the platform regarding the commercial flows between LFC areas or bidding zones and settlement between TSOs is also provided for the transparency and settlement purposes respectively.