‘Balancing capacity’ is a volume of reserve capacity that a balancing service provider (BSP) has agreed to hold and in respect to which the BSP has agreed to submit bids for a corresponding volume of balancing energy to the Transmission System Operator (TSO) for the duration of the contract (Article 2(5) of the Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing - Electricity Balancing Guideline (EBGL)).

         
          
                        New

 

 

Almost the same as the EBGL definition of balancing capacity can be found in the 'Clean Energy Package' (CEP), where it means a volume of capacity that a BSP has agreed to hold to and in respect to which the BSP has agreed to submit bids for a corresponding volume of balancing energy to the TSO for the duration of the contract (Article 2(13) of the Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast)).

 

 

feather

 

Balancing capacity means all resources procured by TSOs in advance, which are available for balancing purposes.

 

Article 16(4) EBGL: Each balancing service provider with a contract for balancing capacity shall submit to its connecting TSO the balancing energy bids or integrated scheduling process bids corresponding to the volume, products, and other requirements set out in the balancing capacity contract.

 

 

This issue was not controversial in the comitology process as the definition has not changed in comparison to the European Commission's Proposal of 30 November 2016 (COM(2016) 861 final 2016/0379 (COD)), Article 2(2)(l)).

 

The same aspects of the definition of the balancing capacity were earlier highlighted in the Recommendation of the Agency for the Cooperation of Energy Regulators (ACER) No 03/2015 of 20 July 2015 on the Network Code on Electricity Balancing.

 

The term: ‘balancing capacity (reserves)’ is also defined in Article 2(10) of Commission Implementing Regulation No 1348/2014 of 17 December 2014 on data reporting implementing Article 8(2) and Article 8(6) of Regulation (EU) No 1227/2011 of the European Parliament and of the Council on wholesale energy market integrity and transparency for the purposes of REMIT reporting where it means ‘the contracted reserve capacity’.

 

In turn, the Commission Staff Working Document accompanying the document Commission Regulation of 23 November 2017 establishing a guideline on electricity balancing ({SWD(2017) 383 final}, p. 3, 14) understands the balancing capacity as 'all resources procured by TSOs ex ante which are available for balancing purposes'.

 

The said Commission document od 23 November 2017 explains that the balancing capacity “refers technically to the balancing reserves”.

 

Hence, more in detail, a balancing capacity is a type of balancing services where the reserve capacity is contracted, in particular:

 

a) frequency containment reserve (FCR), as a primary control,

 

b) frequency restoration reserve (FRR)

- automatic (aFRR) - as a secondary control,

- manual (mFRR) - as a tertiary control, and 

 

c) replacement reserve (RR), as a tertiary control.

 

The procurement of balancing capacity should not, however, be understood as the only option that guarantees that BSPs will submit the required volume of balancing energy bids to TSOs.

 

Other BSPs, without contracted balancing capacity, may also bid in the balancing energy market (Introduction to network tariffs and network codes for consumers, prosumers and energy communities, Technical Report, Leonardo Meeus, Tim Schittekatte, European University Institute, Badia Fiesolana, July 2018, p. 31).

 

In its Opinion No 07/2014 of 21 March 2014 on ENTSO-E‘s draft Network Code on Electricity Balancing ACER recommended that in order to reduce the amount of procured balancing capacity TSOs should take into account the possibility of collecting balancing energy bids from BSPs without a balancing capacity contract.

 

Further, ACER and CEER in their joint Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2014 (of November 2015) advised that the procurement costs of balancing capacity could be optimised by separate procurement of upward and downward balancing capacity and shorter procurement timeframes (p. 210).

 

According to the said Report of November 2015, any distorting impact of reserve procurement on energy price formation should be minimised.

 
The analogous ACER/CEER Report for the year 2019 elaborates in this regard as follows:
“The recast Electricity Regulation reasserts the principle established in the EB Regulation, that balancing capacity procurement should be performed on a short-term basis. This principle aims to maximise the participation of flexible resources in short-term energy markets with a view to improve liquidity and competition. In particular, the day-ahead procurement of capacity advocated in the regulation allows for an efficient arbitrage between day-ahead and balancing capacity markets. The main benefit of this requirement is a more sound formation of close-to-real-time prices which will better reflect the instantaneous needs of the system”.

 
The same Report concludes that following the implementation of the above mentioned provisions, the share of reserve capacity contracted as balancing capacity in day-ahead or intraday timeframes is expected to increase.

The regulators refer to the data showing that the lead time for procuring balancing capacity is currently uneven, depending on the type of reserve, and on the country. More than 60% of the capacity from RRs and aFRRs is contracted on a day-ahead basis, whereas more than 60% of the capacity from mFRRs is contracted on a monthly or yearly basis. The procurement of FCR is somewhere in the middle: a signifcant percentage (27%) is contracted on a weekly basis.

 


Commission Staff Working Document, Impact Assessment of 23.11.2017 accompanying the document Commission Regulation establishing a guideline on electricity balancing ({SWD(2017) 383 final}, p. 15, 16

Due to the physics of electricity, this must be produced and transmitted as it is consumed, which means that the electricity system must always strike a balance between what is generated and what is demanded at any given moment in time.

Further, any disturbance caused by the failure of a single component in the system is transmitted across the entire system almost instantaneously.

Balancing markets are fundamental in keeping demand and supply matched in real time.

Being responsible for the safe and secure operation of electricity systems, TSOs manage the physical equilibrium on the grid by securing a set of balancing services to cope with deviations in the supply or the demand of electricity.

TSOs can secure balancing services by means of both contracted and non-contracted services delivered by BSPs over different timescales.

In the act of balancing, TSOs need to ensure that they will always be able to activate a sufficient amount of energy to balance the deviations between supply and demand in real time.

In other words, the TSO must be in the position to be able to call upon any BSPs to make demand and supply meet.

On their side, BSPs must be able to meet the necessary technical requirements to deliver such a service.

If TSOs are faced with the risk that they will not have enough offers for balancing energy from BSPs in real time, they can hedge this uncertainty by securing in advance a sufficient amount of power capacity available in their control area.

An option, giving the TSOs the possibility to activate a certain amount of balancing energy within a certain timeframe, is defined as 'balancing capacity'.

It is typically defined as the available generation or demand capacity that can be either automatically or manually activated to balance the system in real time.

The TSOs usually check and/or conclude contracts to guarantee they have access to these balancing reserves ahead of real time.

Hence, TSOs can procure balancing energy in real time from balancing resources which were secured in advance as balancing capacity, or by other balancing resources that are offering balancing energy on a voluntary basis, subject to their availability in real time.

In order to deal with disturbances in system operation, TSOs may rely on three types of reserves:

- Frequency Containment Reserve (FCR),
- Frequency Restoration Reserve (FRR) and
- Replacement Reserve (RR).

A balancing market is typically organised by the TSO, which acts as a single buyer, and BSPs submit upward and downward balancing energy and capacity bids.

In accepting these bids, the TSO can therefore ensure an overall balance in supply and demand in real time.

 

The said ACER's Report of November 2015 also observed in a majority of EU Member States the largest share of balancing costs was made up by the procurement costs of balancing capacity. This tendency was upheld in subseqent years and also valid for the year 2019 (ACER Market Monitoring Report 2019 – Electricity Wholesale Markets Volume, p. 48).

 

These are not charged directly to balance responsible parties (BRPs) through imbalance prices, but are normally socialised, typically through the network tariffs.

 

The aforementioned European Commission's Proposal of 30 November 2016 for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast - COM(2016) 861 final 2016/0379 (COD)) in Article 5(7) - (9) envisioned that:

 

- the dimensioning of reserve capacity and the amount of balancing capacity that needs to be procured must be carried out on a regional level,

 

- also the procurement of balancing capacity must be performed on a regional level, based on a primary market and organised in such a way as to be non-discriminatory between market participants in the prequalification process individually or through aggregation,

 

- the procurement of upward balancing capacity and downward balancing capacity must be carried out separately (which represents the implementation of the recommendation contained in the aforementioned ACER/CEER Annual Report of November 2015),

 

- the contracting for the balancing capacity must be performed for not longer than one day before the provision of the balancing capacity and the contracting period must have a maximum period of one day.

 
The rules at issue have been implemented, with some derogations, in Article 6(7) - (14) of Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast) - see below.

 

The regional procurement of balancing capacity will be facilitated by newly established entities called Regional Coordination Centres (Regional Operational Centres in the European Commission's Proposal of 30 November 2016).

 

 

 feather

 

Annex I to the Regulation EU) 2019/943 of the European Parliament and of the Council on the internal market for electricity (recast), Tasks of Regional Coordination Centres

 

7. Regional sizing of reserve capacity

7.1 Regional coordination centres shall calculate the reserve capacity requirements for the system operation region. The determination of reserve capacity requirements shall:

(a) pursue the general objective to maintain operational security in the most cost effective manner;

(b) be performed at the day-ahead or intraday timeframe, or both;

(c) calculate the overall amount of required reserve capacity for the system operation region;

(d) determine minimum reserve capacity requirements for each type of reserve capacity;

(e) take into account possible substitutions between different types of reserve capacity with the aim to minimise the costs of procurement;

(f) set out the necessary requirements for the geographical distribution of required reserve capacity, if any.

 

8. Facilitation of the regional procurement of balancing capacity

8.1 Regional coordination centres shall support the transmission system operators in the system operation region in determining the amount of balancing capacity that needs to be procured. The determination of the amount of balancing capacity shall:

(a) be performed at the day-ahead or intraday timeframe, or both;

(b) take into account possible substitutions between different types of reserve capacity with the aim to minimise the costs of procurement;

(c) take into account the volumes of required reserve capacity that are expected to be provided by balancing energy bids, which are not submitted based on a contract for balancing capacity.

 

 

The tasks entrusted to these entities include, among others, supporting the TSOs of the system operation region in determining the amount of balancing capacity that needs to be procured.

 

In accordance with the said rules, the determination of the amount of balancing capacity must:

 

(a) be performed at the day-ahead and/or intraday timeframe;

 

(b) take into account possible substitutions between different types of reserve capacity with the aim to minimise the costs of procurement;

 

(c) take into account the volumes of required reserve capacity that are expected to be provided by balancing energy bids, which are not submitted based on a contract for balancing capacity.

 

Regional Coordination Centres are also envisioned to support the TSOs of the system operation region in procuring the required amount of balancing capacity.

 

The procurement of balancing capacity must:

 

(a) be performed at the day-ahead and/or intraday timeframe;

 

(b) take into account possible substitutions between different types of reserve capacity with the aim to minimise the costs of procurement.

 

Annual Report of the ACER and CEER on the Results of Monitoring the Internal Electricity and Gas Markets in 2016 (Electricity Wholesale Markets Volume) published in October 2017 confirms the persistence of large disparities in balancing capacity prices in Europe in 2016 (p. 49). 

 

Each BSP intending to provide balancing capacity is required to pass a qualification process defined by the TSOs in close cooperation with Distribution System Operators (DSOs) where necessary (Recital 9 of the EBGL).

 

The submission by a BSP of balancing capacity bids may be temporarily suspended by TSO in situations indicated in Article 35 of the Commission Regulation (EU) 2017/2196 of 24 November 2017 establishing a network code on electricity emergency and restoration - NC ER).

 

 

Transparency requirements

 

 

According to Article 12(3)(f) of the EBGL, each TSO is required to publish - anonymised where necessary - information on offered volumes as well as offered prices of procured balancing capacity.

 

This information should be published as soon as it becomes available, however, no later than one hour after the results of the procurement have been notified to the bidders.

 

Moreover, according to Article 12(3)(h)-(i) of the EBGL each TSO is required to publish the following information as soon as it becomes available:

 

1. information on the allocation of cross-zonal capacity for the exchange of balancing capacity or sharing of reserves at the latest 24 hours after the allocation and no later than 6 hours before the use of the allocated cross-zonal capacity:
(i) date and time when the decision on allocation was made;
(ii) period of the allocation;
(iii) volumes allocated;
(iv) market values used as a basis for the allocation process;

 

2. information on the use of allocated cross-zonal capacity for the exchange of balancing capacity or sharing of reserves at the latest one week after the use of allocated cross-zonal capacity:
(i) volume of allocated and used cross-zonal capacity per market time unit;
(ii) volume of released cross-zonal capacity for subsequent timeframes per market time unit;
(iii) estimated realised costs and benefits of the allocation process.

 

A TSO may withhold the publication of information on offered prices and volumes of balancing energy bids if justified for reasons of market abuse concerns and if not detrimental to the effective functioning of the electricity markets.

 

A TSO shall report such withholdings at least once a year to the relevant regulatory authority.

 

No later than two years after entry into force of the NC EB, each TSO is required publish the above information in a commonly agreed harmonised format at least through the information transparency platform established pursuant to Article 3 of Regulation (EU) No 543/2013.

 

 

Requirements for the procurement of balancing capacity according to the EBGL

 

 

 

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

 

Article 32

Procurement rules

 

1. All TSOs of the LFC block shall regularly and at least once a year review and define the reserve capacity requirements for the LFC block or scheduling areas of the LFC block pursuant to dimensioning rules as referred in Articles 127, 157 and 160 of Regulation (EU) 2017/1485. Each TSO shall perform an analysis on optimal provision of reserve capacity aiming at minimisation of costs associated with the provision of reserve capacity. This analysis shall take into account the following options for the provision of reserve capacity:
(a) procurement of balancing capacity within control area and exchange of balancing capacity with neighbouring TSOs, when applicable;
(b) sharing of reserves, when applicable;
(c) the volume of non-contracted balancing energy bids which are expected to be available both within their control area and within the European platforms taking into account the available cross-zonal capacity.


2. Each TSO procuring balancing capacity shall define the rules for the procurement of balancing capacity in the proposal for the terms and conditions related to balancing service providers developed pursuant to Article 18. The rules for the procurement of balancing capacity shall comply with the following principles:
(a) the procurement method shall be market-based for at least the frequency restoration reserves and the replacement reserves;
(b) the procurement process shall be performed on a short-term basis to the extent possible and where economically efficient;
(c) the contracted volume may be divided into several contracting periods.


3. The procurement of upward and downward balancing capacity for at least the frequency restoration reserves and the replacement reserves shall be carried out separately. Each TSO may submit a proposal to the relevant regulatory authority in accordance with Article 37 of Directive 2009/72/EC requesting the exemption to this requirement. The proposal for exemption shall include:
(a) specification of the time period during which the exemption would apply;
(b) specification of the volume of balancing capacity for which the exemption would apply;
(c) analysis of the impact of such an exemption on the participation of balancing resources pursuant to Article 25(6)(b);

(d) justification for the exemption demonstrating that such an exemption would lead to higher economic efficiency.

 

 

Requirements for the procurement of balancing capacity are stipulated in Articles 32 - 34 of the EBGL.

 

According to Article 32 of the said Regulation each TSO defines the rules for the procurement of balancing capacity and the terms and conditions related to balancing service providers.

 

The rules for the procurement of balancing capacity must obligatory comply with the following principles:


(a) the procurement method shall be market-based for at least the frequency restoration reserves and the replacement reserves;

 

(b) the procurement process shall be performed on a short-term basis to the extent possible and where economically efficient;


(c) the contracted volume may be divided into several contracting periods.

 

The binding requirement is the separate procurement of upward and downward balancing capacity for at least the frequency restoration reserves and the replacement reserves (however, TSO may submit a proposal to the relevant regulatory authority requesting the exemption to this requirement).


BSPs contracted in the balancing capacity market are required to offer balancing energy for their contract duration and the price of the balancing energy bid must not be predetermined in the contract for balancing capacity (Articles 16(4) and 16(6) of the EBGL).

 

According to these provisions:

 

- each BSP with a contract for balancing capacity shall submit to its connecting TSO the balancing energy bids or integrated scheduling process bids corresponding to the volume, products, and other requirements set out in the balancing capacity contract;


- the price of the balancing energy bids or integrated scheduling process bids from standard products and specific products shall not be predetermined in a contract for balancing capacity (TSO may propose an exemption to this rule, however, such an exemption shall only apply to specific products and be accompanied with a justification demonstrating higher economic efficiency).