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Balancing Capacity
European Union Electricity Market Glossary

 

 

 

‘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 (Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing, Article 2(5)).

 

Balancing capacity is a type of balancing services where the reserve capacity is contracted, in particular:

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Article 2(2)(l) 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)   

 

'balancing capacity' means a volume of capacity that a balancing service provider has agreed to hold to and in respect to which the balancing service provider has agreed to submit bids for a corresponding volume of balancing energy to the transmission system operator for the duration of the contract

  

 

frequency containment reserve (FCR),

 

frequency restoration reserve (FRR), and 

 

replacement reserve (RR).

 

The so-called 'Winter Energy Package' defined balancing capacity as 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 Transmission System Operator (TSO) for the duration of the contract (Article 2(2)(l) 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)).

 

The same aspects of the definition of the balancing capacity were earlier highlighted in the ACER's Recommendation 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 23.11.2017 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 23.11.2017 explains that the balancing capacity “refers technically to the balancing reserves”.

 

The procurement of balancing capacity should, however, be understood as only one option that guarantees that BSPs with a balancing capacity contract will always submit the required volume of balancing energy bids to TSOs.

 

In order to reduce the amount of procured balancing capacity TSOs should take into account, inter alia, the possibility of collecting balancing energy bids from BSPs without a balancing capacity contract (see: ACER Opinion No 07/2014 of 21 March 2014 on ENTSO-E Network Code on Electricity Balancing).

 

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

 

According to the ACER, any distorting impact of reserve procurement on energy price formation should be minimised.

 

The said ACER's Report of November 2015 also observes in a majority of EU Member States the largest share of balancing costs is made up by the procurement costs of balancing capacity.

 

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

 

The aforementioned 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) in Article 5(7) - (9) stipulates 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 in accordance with points 7 of Annex I to the said Proposal for a Regulation (see box), 

 

- the procurement of balancing capacity must be performed on a regional level in accordance with point 8 of Annex I to the said Proposal for a Regulation, and 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 aforementioned point 7 of Annex I to the said Proposal for a Regulation provides for the facilitation of the regional procurement of balancing capacity with the use of newly established entities called regional operational centres (ROCs).  

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Annex I to 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), point 7

 

 

7. Regional sizing of reserve capacity

 

7.1. Regional operational centres shall determine 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 and/or intraday timeframe;

 

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


(d) define 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.

 

 

The tasks entrusted to ROCs 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 operational 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 Network Code on Electricity Balancing (NC EB)).

 

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 NC EB, 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 NC EB 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 

 

 

 

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

 

According to Article 32 of the said Regulation each TSO defines the rules for the procurement of balancing capacity 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).

 

 

Transfer of balancing capacity

 

 

Requirements for the transfer of balancing capacity are stipulated in Article 34 of the Commission Regulation (EU) 2017/2195 of 23 November 2017.

 

According to this provision the following rules for the transfer of balancing capacity apply:

 

1. within the geographical area in which the procurement of balancing capacity has taken place, the TSOs are required to allow balancing service providers to transfer their obligations to provide balancing capacity (the concerned TSO or TSOs may request an exemption where contracting periods for balancing capacity are strictly less than one week);

 

2. the transfer of balancing capacity must be allowed at least until one hour before the start of the delivery day;

 

3. the transfer of balancing capacity must be allowed if the following conditions are met:

 

(a) the receiving balancing service provider has passed the qualification process for the balancing capacity for which the transfer is performed,

 

(b) the transfer of balancing capacity is not expected to endanger operational security,

 

(c) the transfer of balancing capacity does not exceed the operational limits;

 

4. in case the transfer of balancing capacity requires the use of cross-zonal capacity, such transfer is only allowed in case:

 

(a) the cross-zonal capacity required to perform the transfer is already available from previous allocation processes,

 

(b) the cross-zonal capacity is available pursuant to the methodology for calculating the probability of available cross-zonal capacity after intraday cross-zonal gate closure time.

 

5. if a TSO does not allow the transfer of balancing capacity, the concerned TSO must explain the reason for the rejection to the balancing service providers involved.

 

 

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

 

Article 34

Transfer of balancing capacity

 

1. Within the geographical area in which the procurement of balancing capacity has taken place, the TSOs shall allow balancing service providers to transfer their obligations to provide balancing capacity. The concerned TSO or TSOs may request an exemption where contracting periods for balancing capacity pursuant to Article 32(2)(b) are strictly less than one week.


2. The transfer of balancing capacity shall be allowed at least until one hour before the start of the delivery day.


3. The transfer of balancing capacity shall be allowed if the following conditions are met:
(a) the receiving balancing service provider has passed the qualification process for the balancing capacity for which the transfer is performed;
(b) the transfer of balancing capacity is not expected to endanger operational security;
(c) the transfer of balancing capacity does not exceed the operational limits set out in Chapters 1 and 2 of Part IV Title VIII of Regulation (EU) 2017/1485.


4. In case the transfer of balancing capacity requires the use of cross-zonal capacity, such transfer shall only be allowed in case:
(a) the cross-zonal capacity required to perform the transfer is already available from previous allocation processes pursuant to Chapter 2 of Title IV;
(b) the cross-zonal capacity is available pursuant to the methodology for calculating the probability of available cross-zonal capacity after intraday cross-zonal gate closure time in accordance with Article 33(6).


5. If a TSO does not allow the transfer of balancing capacity, the concerned TSO shall explain the reason for the rejection to the balancing service providers involved.

 

On 15 January 2018 the Draft Proposal for the exemption of the FCR Cooperation Parties from the obligation to allow balancing service providers to transfer their obligations to provide balancing capacity in accordance with Article 34 (1) of Commission Regulation (EU) 2017/2195 establishing a guideline on electricity balancing has been published by TSOs from Austria, Belgium, Denmark, France, Germany, the Netherlands and Switzerland.

 

The above TSOs propose that cross border transfer of awarded capacity obligations should remain prohibited in their common FCR procurement.

 

The said TSOs request the relevant exemption, which is reasoned as follows:

 

1. since the said TSOs are planning to implement daily procurement of FCR capacity, they consider that the risk for BSPs of not being able to meet their obligations is significantly lower than the case of weekly procurement (as a result, also the need for the BSPs to transfer their obligations in a cross border context is expected to be substantially lower);


2. linked to the limited needs to implement a cross border context, the said TSOs consider that the task of implementing such a solution comes with the following, significant complexity:


- the import and export limitation violations have to be reassessed each time a demand for cross border transfer of obligations is expressed,


- the k factor, as defined in Commission Regulation EU 2017/1485, of each LFC Control Area needs to be readapted every time a cross border transfer of capacity takes place;


3. the following conditions should be in place in order to have an efficient cross border transfer of obligations that does not induce market distortions, these conditions require a lot of time and effort by the said TSOs:


- harmonisation of penalties in case of BSP failure of delivery among the participating countries,


- design of a mechanism for the allocation of the relevant cross border capacity resulting from the respective import and export limitations should be developed,


- implementing the above mechanism in a central tool and in the LFC of each control area.

 

 

 

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

 

 

Article 33

Exchange of balancing capacity

 

1. Two or more TSOs exchanging or mutually willing to exchange balancing capacity shall develop a proposal for the establishment of common and harmonised rules and processes for the exchange and procurement of balancing capacity while respecting the requirements set out in Article 32.


2. Except in cases where the TSO-BSP model is applied pursuant to Article 35, the exchange of balancing capacity shall always be performed based on a TSO-TSO model whereby two or more TSOs establish a method for the common procurement of balancing capacity taking into account the available cross-zonal capacity and the operational limits defined in Chapters 1 and 2 of Part IV Title VIII of Regulation (EU) 2017/1485.


3. All TSOs exchanging balancing capacity shall submit all balancing capacity bids from standard products to the capacity procurement optimisation function. TSOs shall not modify or withhold any balancing capacity bids and shall include them in the procurement process, except under conditions set out in Article 26 and Article 27.


4. All TSOs exchanging balancing capacity shall ensure both the availability of cross-zonal capacity and that the operational security requirements set out in Regulation (EU) 2017/1485 are met, either by:
(a) the methodology for calculating the probability of available cross-zonal capacity after intraday cross-zonal gate closure time pursuant to paragraph 6;
(b) the methodologies for allocating cross-zonal capacity to the balancing timeframe pursuant to Chapter 2 of Title IV.


5. Each TSO using the methodology for calculating the probability of available cross-zonal capacity after intraday cross-zonal gate closure time shall inform other TSOs in their LFC block of the risk of unavailability of reserve capacity in the scheduling area or areas of its control area that may affect the fulfilment of the requirements pursuant to Article 157(2)(b) of Regulation (EU) 2017/1485.


6. TSOs exchanging balancing capacity for frequency restoration reserves and replacement reserves may develop a proposal for a methodology for calculating the probability of available cross-zonal capacity after intraday cross-zonal gate closure time. The methodology shall at least describe:
(a) the procedures to notify to other TSOs in the LFC block;
(b) the description of the process to perform the assessment for the relevant period for the exchange of balancing capacity;
(c) the method to assess the risk of unavailability of cross-zonal capacity due to planned and unplanned outages and due to congestions;
(d) the method to assess the risk of insufficient reserve capacity due to unavailability of cross-zonal capacity;
(e) the requirements for a fall-back solution in case of unavailability of cross-zonal capacity or insufficient reserve capacity;
(f) the requirements for ex-post review and monitoring of risks;
(g) the rules in order to ensure the settlement pursuant to Title V.


7. TSOs shall not increase the reliability margin calculated pursuant to Regulation (EU) 2015/1222 due to the exchange of balancing capacity for frequency restoration reserves and replacement reserves.

  

 

 

 

 

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

 

Settlement of balancing capacity

 

Article 56

Procurement within a scheduling area

 

1.   Each TSO of a scheduling area using balancing capacity bids shall establish rules for the settlement of at least frequency restoration reserves and replacement reserves pursuant to the requirements set out in Article 32.

 

2.   Each TSO of a scheduling area using balancing capacity bids shall settle at least all procured frequency restoration reserves and replacement reserves pursuant to the requirements set out in Article 32.

 

Article 57

Procurement outside a scheduling area

 

1.   All TSOs exchanging balancing capacity shall establish rules for the settlement of procured balancing capacity pursuant to Article 33 and Article 35.

 

2.   All TSOs exchanging balancing capacity shall jointly settle procured balancing capacity using the TSO-TSO settlement function pursuant to Article 33. TSOs exchanging balancing capacity based on a TSO-BSP model shall settle procured balancing capacity pursuant to Article 35.

 

3.   All TSOs exchanging balancing capacity shall establish rules for the settlement of allocation of cross-zonal capacity pursuant to Chapter 2 of Title IV.

 

4.   All TSOs exchanging balancing capacity shall settle the allocated cross-zonal capacity pursuant to Chapter 2 of Title IV.

 

 

 

 

 

 

 

 

IMG 0744

    Documentation    

 

 

 

 

 

 

Network Code on Electricity Balancing (Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing - NC EB), Article 2(5), Articles 32 - 34, Articles 56, 57

 

Network Code on Emergency and Restoration (Commission Regulation (EU) 2017/2196 of 24 November 2017 establishing a network code on electricity emergency and restoration - NC ER), Article 35

 

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

 

Draft Proposal for the exemption of the FCR Cooperation Parties from the obligation to allow balancing service providers to transfer their obligations to provide balancing capacity in accordance with Article 34 (1) of Commission Regulation (EU) 2017/2195 establishing a guideline on electricity balancing, 15 January 2018

 

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), Article 2(2)(l), Article 5(7) - (9), Annex 1 points 7 and 8

 

ACER's Recommendation No 03/2015 of 20 July 2015 on the Network Code on Electricity Balancing

 

ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2014, November 2015 (p. 210)

 

ACER Opinion No 07/2014 of 21 March 2014 on ENTSO-E Network Code on Electricity Balancing

 

 

 

 

 

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    Links    

 

 

 

 

 

Characteristics of the Standard Products for the Balancing Capacity in the EU Internal Electricity Market

 

 

 

 

 

 

 

 

 

 

 

Last Updated on Tuesday, 02 October 2018 13:41
 

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