Balancing Energy
European Union Electricity Market Glossary

 


 

 

"Balancing Energy" in the European Union Internal Electricity Market means energy used by Transmission System Operators (TSOs) to perform balancing.

 

 

Article 2(2)(j) 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 energy' means energy used by transmission system operators to perform balancing

  

This definition is also used by the upcoming legislation of the so-called 'Winter Package' (Article 2(2)(j) 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)).

 

ACER's Recommendation No 03/2015 of 20 July 2015 on the Network Code on Electricity Balancing underlines the fact the origin of the Balancing Energy can be a Power Generating Facility or Demand Facility.

 

A pan-European Exchange of Balancing Energy is envisioned, but, due to the scale and complexity of this task, a phased approach has been adopted. 

 

This approach is to allow coordination on a regional basis first (thus the development of the Coordinated Balancing Area (CoBA) concept), followed by a merging of these regional initiatives. 

 

Each region should thus be mindful of the developments in other regions and should follow a similar structure so that wider coordination can easily be achieved later.

 

The settlement between TSO and a Balancing Service Provider (BSP) of energy from a Frequency Containment Reserve (FCR) is left optional in the Network Code on Electricity Balancing (NC EB) due to potentially small volumes of capacity and activated energy and the possible difficulties for measurement associated to the FCR process.

 

This settlement of Balancing Energy from the obligatory Frequency Restoration Process (see Frequency Restoration Reserve (RR)), is obligatory.

 

"There are a number of steps involved in the procurement of Balancing Energy. Balancing Energy bids can be placed either on a local or regional TSO procurement platform by both providers of contracted Balancing Capacity or BSPs who have no contracted reserves (e.g. demand, renewable generation units, and variable and smaller generation units). These Balancing Energy bids can be updated until Balancing Energy Gate Closure Time. After Intraday Cross Zonal Gate Closure Time and before Balancing Energy Gate Closure Time, the BSPs can continue to change their Balancing Energy bids which were previously submitted or submit new bids. After the Balancing Energy Gate Closure Time their Balancing Energy bids can only be changed after approval of all TSOs of the relevant CoBA. The TSO procurement platform sends the Balancing Energy bids with the corresponding energy price to the common bid collection function (where multiple Balancing Energy procurement platforms exist) which then builds the Common Merit Order List. This Common Merit Order List is part of the input for the central Activation Optimisation Function. A confirmation is sent back to the local tendering system. This process establishes the need for a harmonised pricing method which may be either marginal pricing or pay-as-bid."

 

ENTSO-E Supporting Document for the Network Code on Electricity Balancing of 6 August 2014, p. 21

 

 

The settlement of Balancing Energy from the non-obligatory Reserve Replacement Process (see Replacement Reserve (RR)) is only applicable for where this process has been implemented.

 

 

Balancing Energy Standard Products

  

 

See detailed remarks on the characteristics of Standard Products for the Balancing Energy in the EU Internal Electricity Market.

 

 

Balancing Energy Activation Mechanism

 

 

The ENTSO-E Supporting Document for the Network Code on Electricity Balancing of 6 August 2014 describes the activation mechanism for Balancing Energy with the following words (p. 57, 58):

 

"The main goal is to assure the most efficient way of activating Balancing Energy through a transparent, non-discriminatory, fair and objective process while taking into account technical and network constraints. It will be done by the Activation Optimisation Function based on Common Merit Order Lists. These Common Merit Order Lists will be established by TSOs for each Standard Product as defined in the NC EB and will be also separated for upward and downward bids.

 

These separations between Common Merit Order Lists are necessary in order to control the processes and can be considered to be the lowest level of optimisation. If there is the need to create more than one Common Merit Order List for a Standard Product for Balancing Energy then TSOs are also allowed to establish these lists. The reasons for this could be, e.g. the amount of bids that have to be processed, local needs of TSOs that otherwise could not be tackled without complicating the whole process and risking the performance of the process. After establishing the Common Merit Order Lists the TSOs will use them as follows:

 

- The TSOs will send all the bids for each Standard Product they previously collected from BSPs within their Responsibility Area or Scheduling Area to the Activation Optimisation Function, which includes the Common Merit Order Lists. This has to be done up to the Balancing Energy Gate Closure Time as defined by TSOs based on the technical characteristics of the relevant Standard Product for Balancing Energy, e.g. depending on the activation time.

 

- After sending all the bids, each TSO will also send its activation request for Balancing Energy to that Activation Optimisation Function. The relevant Common Merit Order Lists are developed based on these bids, the technical characteristics of the requested Balancing Energy and request for Balancing Energy.

 

- After creating the Common Merit Order Lists, the Matching of the bids will be done automatically by the Activation Optimisation Function. The Matching includes the optimisation process of Cross Zonal Capacity as well.

 

- After the Matching, the TSOs will receive a confirmation of telling the TSOs which of its bids and offers are accepted. In respect of the accepted bids, the TSOs have to activate the relevant BSPs. The BSPs are obliged to deliver the relevant Balancing Energy.

 

- Once bids have been accepted, the TSOs have to know if the requested amounts of Balancing Energy will be delivered or if additional steps have to be undertaken by some TSOs to fulfil the individual security needs.

 

These functions have to at least take into account all relevant Balancing Energy bids and requests that are provided to the relevant Common Merit Order Lists by the TSOs. Also the available Cross Zonal Capacity has to be taken into account in order to allow for a firm delivery of the activated Balancing Energy."

 

 


 

 

 

Balancing Energy Price

 

 

It is often argued that the Balancing Energy price should be related to the day-ahead (DA) electricity price in order to indicate the actual costs of activating Balancing Energy.

 

This is because the difference between these two prices can be regarded as the opportunity costs for Balance Responsible Parties (BRPs) for not balancing their portfolio on the day before delivery (assuming that these costs are fully reflected in Imbalance charges).

 

This price difference is a useful indicator of the social costs of balancing, and can be applied both for upward and downward Balancing Energy.

 

In theory this comparison should be made with the intra-day (ID) market price, as this is the nearest alternative for BRPs to balance their portfolio before real time.

 

However, the number of liquid ID markets with reliable ID prices is limited in Europe, so the comparison was made with DA prices (ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2014, November 2015p. 209).

 

It is also ACER's recommendation (contained in the aforementioned Annual Report of November 2015 (p. 214, 217)) to implement a pricing method based on marginal pricing for Balancing Energy. The said Report observes, however, some EU Member States such as Austria, Belgium, Croatia, Germany, Italy, Slovakia and Slovenia apply "pay as bid" rules in Balancing Energy regimes. 

 

This, according to ACER, provides weak incentives, as opposed to marginal pricing, where prices can be much higher and therefore better able to compensate for the fixed costs of peak plant. 

 

ACER argues, moreover, that during the balancing timeframe, it is important to have prices which reflect the adequate value of electricity in order to send the appropriate scarcity signals to the market and ensure that supply responds to demand.

 

 

Article 5(5) 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)

 

Marginal pricing shall be used for the settlement of balancing energy. Market participants shall be allowed to bid as close to real time as possible, and at least after the intraday cross-zonal gate closure time determined in accordance with Article 29 of Commission Regulation (EU) 2015/1222

  

 

The aforementioned ACER's recommendation for the implementation of a pricing method based on marginal pricing for Balancing Energy has been reflected in Article 5(5) 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)

 

Article 5(10) of the said Proposal also stipulates that TSOs are required to publish close to real-time information on the the Balancing Energy price (as well as on the Imbalance Price and on the current balancing state of TSO's control areas).

 

 

Documentation

 

 

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)(j)

 

 

Links

 

 

Balancing Capacity

 

 

 

Last Updated on Friday, 06 January 2017 12:06
 

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