"Balancing energy" in the European Union Internal Electricity Market means energy used by Transmission System Operators (TSOs) to perform balancing and provided by the balancing service provider (BSP) (Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing (further referred to as the Network Code on Electricity Balancing, NC EB or EB GL), Article 2(4)).

         
                                   
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7 February 2024

ACER has received the TSOs’ proposal to amend:

  • the common methodology for harmonising the pricing balancing energy and cross-border capacity; and
  • the implementation framework for a European platform for the exchange of balancing energy from frequency restoration reserves with automatic activation (aFRR).

In relation to the pricing methodology, the TSOs are proposing to:

  • Reduce the technical price limits of the integrated balancing energy markets from 99,999 to 15,000 EUR/MWh. This implies that balance service providers will not be allowed to bid below -15,000 EUR/MWh or above 15,000 EUR/MWh, after July 2026.
  • Lower the transitional price limit (valid until July 2026) to 10,000 EUR/MWh. Similarly, during this transitional period, balance service providers will only be allowed to bid between the price range from -10,000 to 10,000 EUR/MWh.
  • Use an alternative way to compute the prices from the PICASSO platform to better reflect the bids activated by the TSOs.

In terms of the aFRR implementation framework, the TSOs propose introducing the possibility of using an elastic demand. This would allow them to price a segment of their demand and therefore establish a threshold beyond which they are unwilling to activate balancing energy. This would improve the TSOs' ability to manage the balance between cost efficiency and the need for maintaining high-quality frequency.


28 February 2022

ACER decides on the TSOs’ proposal to amend the common methodology for the pricing of balancing energy and the cross-border capacity used for the exchange across the European electricity markets

ACER Decision No 03/2022 of 25 February 2022 on the amendment to the methodology for pricing balancing energy and cross-zonal capacity used for the exchange of balancing energy or operating the imbalance netting process

Annex I

Annex Ia

Annex II

 

 

The above definition is also used within the framework of the REMIT Regulation. This definition has been also adopted by the so-called 'Winter Energy 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), which, however, omits the reference to the BSP - 'balancing energy' means energy used by transmission system operators to perform balancing).

According to Article 2(11) 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), ‘balancing energy’ means ‘energy used by transmission system operators to carry out balancing’.

Balancing energy is also defined in Article 2(9) 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 “energy used by TSOs to perform balancing”.

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) defines the balancing energy as the energy activated by TSOs to maintain the balance between injections and withdrawals in real time.

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 BSP of energy from a frequency containment reserve (FCR) is left optional in the Network Code on Electricity Balancing 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 frequency restoration reserve (FRR) is obligatory. 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.

Each BSP intending to provide balancing energy 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 NC EB). The submission by a BSP of balancing energy 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).

 

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

 

Legal requirements for the balancing energy activation mechanism are described in Article 29 of the Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing.

According to Article 29(2) of the said Regulation TSOs shall not activate balancing energy bids before the corresponding balancing energy gate closure time, except in the alert state or the emergency state when such activations help alleviate the severity of these system states and except when the bids serve purposes other than balancing.

The activation of balancing energy bids is to be based on a TSO-TSO model with a common merit order list (CMOL) - Article 29(7) of the Regulation (EU) 2017/2195.

The ENTSO-E Supporting Document for the Network Code on Electricity Balancing of 6 August 2014 describes the activation mechanism for balancing energy as follows (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."

On 12 September 2018 ENTSO-E has published two documents dealing with the methodology for the activation purposes of balancing energy bids (re-edited on 18 December 2018): 

- All TSOs’ proposal for classification methodology for the activation purposes of balancing energy bids pursuant to Article 29(3) of Commission Regulation (EU) 2017/2195 establishing a guideline on electricity balancing, and

- Explanatory document to all TSOs’ proposal for classification methodology for the activation purposes of balancing energy bids pursuant to Article 29(1) of Commission Regulation (EU) 2017/2195 establishing a guideline on electricity balancing.

Article 3 of the said ENTSO-E proposal foresees that the TSO activating the bid from the common merit order list shall use the following activation purposes:

(a) balancing;

(b) system constraints.

For balancing, the reason for activating a standard balancing energy product bid is the mismatch between the scheduled and the actual or forecasted position on system level. The total imbalance reflects the imbalances on balance responsible parties (BRPs) level.

For the system constraints, the reason for activating a standard balancing energy product bid is a reason different than the mismatch between the scheduled and the actual or forecasted position on system level such as, at least, (i) process congestions, or (ii) rebuild system margin so as to ensure enough margin and/or avoid entering into alert state.

Moreover, ENTSO-E document mentions that the TSOs are allowed to use all standard balancing energy bids for balancing purposes, whereas TSOs are allowed to use standard RR and mFRR (manually-activated FRR) balancing energy product bids for balancing and system constraint purposes. Hence, according to the said TSO’s proposal of 12 September 2018 the schedule of activation purposes is as follows:

- each TSO participating in the RR-Platform shall activate standard RR balancing energy product bids via the activation optimisation function of the RR-Platform for the purpose of balancing or system constraints,

- each TSO participating in the mFRR-Platform shall activate standard mFRR balancing energy product bids via the activation optimisation function of the mFRR-Platform for the purpose of balancing or system constraints,

- each TSO participating in the aFRR-Platform shall activate standard aFRR balancing energy product bids via the activation optimisation function of the aFRR-Platform for the purpose of balancing. 

It follows that, according to the TSO's proposal, it is not allowed to activate standard aFRR balancing energy product bids via the activation optimisation function of the aFRR-Platform for the purpose of system constraints.

As regards the existing status quo, the ENTSO-E Explanatory document refers to the fact that in some countries, the balancing energy bid products are used not only for balancing but also for remedial actions, while in other countries, there is a strict separation between balancing energy products (including but not limited to remuneration) and flexibility activated for remedial actions.

Regulatory stance in this regard has been finally determined in the ACER Decision No 16/2020 of the European Union Agency for the Cooperation of Energy Regulators of 15 July 2020 on the methodology for classifying the activation purposes of balancing energy bids.

According to the Annex I to the said ACER Decision (Article 3):

1. the possible activation purposes for balancing energy bids are the following:
(a) balancing,
(b) system constraints;

2. the activation purpose of an activated balancing energy bid are defined as “balancing” when one of the following classification criteria applies:
(a) RR balancing energy product bid: activation aims to achieve the control target of the reserve replacement process in accordance with Article 144(1) of the Network Code on System Operation (Commission Regulation (EU) 2017/1485 of 2 August 2017 establishing a guideline on electricity transmission system operation - SOGL),
(b) mFRR balancing energy product bid: manual activation aims to achieve the control target of the frequency restoration process in accordance with Article 143(1) of the SOGL,
(c) aFRR balancing energy product bid: automatic activation aims to achieve the control target of the frequency restoration process in accordance with Article 143(1) of the SOGL;

3. the activation purpose of an activated balancing energy bid is defined as “system constraints” when one or more of the following classification criteria apply (in accordance with the said TSO’s proposal of 12 September 2018):

(a) activation to maintain voltage limits in accordance with Article 27 of the SOGL);

(b) activation to maintain power-flow limits in accordance with Article 32 of the SOGL;
(c) activation to maintain short-circuit current limits according to Article 30 of the SOGL and Article 31(3) of the SOGL;
(d) activation to maintain the dynamic stability limits in accordance with Article 39 of the SOGL;
(e) activation to maintain reactive power reserves in accordance with Article 29 of the SOGL;
(f) activation to maintain active power reserves in accordance with Article 152(1) of the SOGL;
(g) activation to maintain system margin ensuring that active and reactive power reserves, are sufficient in accordance with Article 18(1)(c) of the SOGL, to restore the normal state in accordance with Article 18(1) of the SOGL, to prevent an alert sate in accordance with Article 18(2) of the SOGL and to prevent an emergency state in accordance with Article 18(3) of the SOGL.

The recitals of the said ACER’s Decision No 16/2020 contain the following important clarifications:

  • ACER understands that the requirement of Article 29(3)(a) of the EB GL refers to “all possible purposes for the activation of balancing energy bids”, “hence it does not share the view that new activation purposes or classification criteria for the activation of balancing energy bids can be defined at national level (i.e. the methodology includes an exhaustive list of activation purposes and classification criteria)”;
  • ACER understands that further specification of the already described classification criteria at national level is possible;
  • despite the fact that this activation purposes methodology defines an exhaustive list of the activation purposes, as well as of the respective classification criteria, ACER considers that the usage of the methodology for defining the activation purpose of a balancing energy bid is mandatory only for the bids of the common merit order lists, as specified in Article 29(4) of the EB GL (i.e. it is not mandatory for not converted integrated scheduling process bids or not converted specific product bids);
  • however, ACER considers that balancing energy bids of the common merit order lists include also the ones that have been declared as unavailable and activated at a local level;
  • hence ACER amended the TSO’s proposal to clarify this understanding, and to explicitly state that this activation purposes methodology is mandatory also for locally activated bids that have been declared as unavailable in the European balancing platforms.

Moreover, the said ACER Decision requires that where the information is available, the TSO activating balancing energy bids for the activation purpose of system constraints must publish if the balancing energy bids were activated for redispatching or countertrading, as defined in Articles 2(26) and 2(13) Commission Regulation (EU) 543/2013, respectively, or for other remedial actions. This information shall be published as soon as possible but no later than one hour after the validity period of the balancing energy bid.

Annex II to the ACER Decision 16/2020 (Evaluation of responses to the public consultation on the methodology for classifying the activation purposes of balancing energy bids) refers to the comment made by the one of respondents (EPEX SPOT) on the need to distinguish between the balancing market and other markets providing flexibility that should be developed in the future. The said respondent observed that while “it understands that in the short run some products might be traded on markets that have not been designed for these, such practice should remain temporary. The market design envisaged in the EU’s target model has to ensure that congestion management and redispatch are handled on dedicated markets and platforms operated by independent and neutral third parties”. ACER agreed with the above comment and noted that the definition of the system constraints activation purpose should not be understood as an approach to replace other ancillary services markets. On the contrary, it is a mean of increasing transparency of actions already taken by TSOs, the monitoring of which would also allow to identify the potential for creating new markets.

 

Balancing Energy Price

 

"The balancing energy prices should have a signalling effect that incentivises both BSPs and BRPs to adjust their behaviours as a response to market conditions," said the ACER in the Decision No 03/2022 of 25 February 2022 on the amendment to the methodology for pricing balancing energy and cross-zonal capacity used for the exchange of balancing energy or operating the imbalance netting process. This stance is reflected in the balancing settlement principles, in particular, pursuant to Article 44(1)(c) of the EBGL, the imbalance settlement shall provide incentives to BRPs to be in balance or help the system to restore its balance. It is also 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 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 intraday markets with reliable intraday prices is limited in Europe, so the comparison is mostly made by regulators with day-ahead 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 the 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.

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) - so called: Winter Energy Package), which, moreover, envisions that market participants must be allowed to bid as close to real time as possible, and at least after the intraday cross-zonal gate closure time.

The said considerations have been finally included in Article 6(4) 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), which stipulates that:

  • the settlement of balancing energy for standard balancing products and specific balancing products must be based on marginal pricing (pay-as-cleared) unless all regulatory authorities approve an alternative pricing method on the basis of a joint proposal by all transmission system operators following an analysis demonstrating that that alternative pricing method is more efficient;
  • market participants are to be allowed to bid as close to real time as possible, and balancing energy gate closure times shall not be before the intraday cross-zonal gate closure time;
  • there may be additional rules where TSOs apply a central dispatching model.

Article 5(10) of the said Proposal of 30 November 2016 also stipulated that TSOs were 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).

In this regard, the final text of the Regulation (EU) 2019/943 established in Article 6(13) the following rule:

“[t]ransmission system operators or their delegated operators shall publish, as close to real time as possible but with a delay after delivery of no more than 30 minutes, the current system balance of their scheduling areas, the estimated imbalance prices and the estimated balancing energy prices”.

The ACER in its Recommendation No 03/2015 of 20 July 2015 on the Network Code on Electricity Balancing proposed that the price of balancing energy should not be predetermined by a contract for balancing capacity. An exemption to this rule should only be allowed when accompanied by a clear justification demonstrating higher economic efficiency, the avoidance of distortion of balancing energy prices and providing insurance that such balancing energy bids in the CMOL reflect the real time price of energy. The main reason for the above recommendation was to provide a level playing field allowing to set the price of balancing energy for all BSPs as close as possible to real time and at least until the intraday cross-zonal gate closure time. The above ACER’s recommendation have been reflected in Article 6(2) of the Regulation (EU) 2019/943, which reads:

”The price of balancing energy shall not be pre-determined in contracts for balancing capacity. Procurement processes shall be transparent in accordance with Article 40(4) of Directive (EU) 2019/944, while protecting the confidentiality of commercially sensitive information”.

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 energy prices in Europe in 2016 (p. 49). 

The said Report of October 2017 observes the EU Member States applying price regulation appear to be among those with the lowest unit costs of activating balancing energy in Europe (p. 50). This includes:

- Slovakia, where price regulation applies to the energy activated from all types of reserves,
- the Czech Republic, where price regulation applies to the energy activated from automatically activated frequency restoration reserves (aFRRs), and
- France, where price regulation applies to the energy activated from FCRs and from aFRRs, accounting for approximately 30% of activations in the French system.

However, in the ACER’s opinion, lowering artificially the balancing energy procurement costs through price regulation is counter-productive. The target should not be to guarantee the lowest possible balancing energy prices, but to ensure efficient price formation, i.e. prices reflecting the ‘true’ value of flexibility. ACER underlines in the above Report of October 2017, that in general, price regulation is a barrier to balancing energy prices to reflect this value, and therefore fails to attract the adequate investments in flexible resources from either generation or demand assets. Moreover, relatively low (average) balancing energy procurement costs can be observed in countries without price regulation such as for Germany, the Netherlands, the whole Nordic area and Switzerland. The said ACER’s Report of October 2017 observes that several EU Member States, including Austria, Belgium, Croatia, Germany, Hungary, Italy, Slovakia and Slovenia still apply ‘pay-as-bid’ rules in their balancing energy regimes. ACER concludes, priority should be given to removing those elements of balancing market design that impede the free fluctuation of balancing energy prices. This includes, inter alia, the inefficient procurement of balancing capacity, the application of regulated prices or of pricing methods that are not based on marginal pricing. All in all, balancing energy bids will compete on EU-wide balancing platforms, hence, it will also have positive effects on competition (Recital 5 of the NC EB).

According to Article 13(2) of the Regulation (EU) 2019/943, balancing energy bids used for redispatching must not set the balancing energy price.

 

Methodology for pricing balancing energy and cross-zonal capacity used for the exchange of balancing energy or operating the imbalance netting process

 

On 28 October 2019 ACER started public consultation on the pricing methodology for balancing energy and cross-zonal capacity (the methodology provides the rules for the efficient pricing of the balancing energy that results from bids activation and of the cross-zonal capacity used for the exchange of balancing energy). The said consultation was the result of the letter submitted by the EU Member States' regulatory authorities to the ACER regarding respective TSO's proposal. The process ended with the ACER Decision No 01/2020 of 24 January 2020 on the methodology to determine prices for the balancing energy that results from the activation of balancing energy bids.

On 11 October 2021 ACER started Public Consultation on possible improvements of the above methodology (PC_2021_E_09). As a result of the consultation ACER adopted on 25 February 2022 the Decision No 03/2022 on the amendment to the methodology for pricing balancing energy and cross-zonal capacity used for the exchange of balancing energy or operating the imbalance netting process. ACER amended the TSOs’ proposal and included a transitory price limit of 15,000 €/MWh for the first 4 years of the European balancing platforms’ operations, until July 2026. According to the ACER efficient market functioning is based on free price formation. As such, the technical price limit of 99,999 €/MWh (see ACER Decision 01/2020) has not changed.

The transitional price limit provides a safeguard for the first years of the European balancing platforms’ operations. This is a temporary measure for mitigating the possible risks of the initial phase of the European balancing platforms’ go-live and to allow TSOs and market participants to gather experience on their functioning. 

Pursuant to Article 10(1) of the Regulation (EU) 2019/943, there shall be neither a maximum nor a minimum limit to the wholesale electricity price. This provision shall apply, inter alia, to bidding and clearing in all timeframes and shall include balancing energy and imbalance prices, without prejudice to the technical price limits which may be applied in the balancing timeframe and in the day-ahead and intraday timeframes in accordance with paragraph (2) of the same Article.

Pursuant to Article 30(2) of the EB GL, in case TSOs identify that technical price limits are needed for efficient functioning of the market, they may jointly develop, as part of the proposal for the pricing methodology, a proposal for harmonised maximum and minimum balancing energy prices, including bidding and clearing prices, to be applied in all scheduling areas. In such a case, harmonised maximum and minimum balancing energy prices take into account the maximum and minimum clearing price for day-ahead and intraday timeframes pursuant to the CACM Regulation.

The technical price limits pursuant to Article 30(2) of the EB GL have been set in the pricing methodology at the level of 99,999€/MWh and -99,999€/MWh for both positive and negative balancing energy. These price limits are not lower than the limits imposed within the day-ahead and intraday timeframes and therefore do not restrict price formation.

The ACER Decision No 03/2022 of 25 February 2022 on the amendment to the methodology for pricing balancing energy and cross-zonal capacity used for the exchange of balancing energy or operating the imbalance netting process introduces transitional price limits in addition to the technical price limits which are lower than the technical price limits, for a limited period of time. The purpose of these transitional price limits is to alleviate any concerns linked to the transitory period during the first years of the operation of the European balancing platforms with the participation of all the TSOs, in accordance with Article 19 to Article 22 of the EB GL. As such, introducing these temporary lower price limits aims to facilitate the integration of the balancing markets, in line with the objective set out in Article 3(1)(c) of the EB GL. According to the ACER Decision, once the European balancing platforms are implemented in a Member State, and for a transitional period of up to 48 months from the implementation deadline the transitional upper price limit shall be 15,000 €/MWh and the transitional lower price limit shall be - 15,000 €/MWh. However, it is to be noted that the issue raised sparkling controversies between the EU Member States national energy market regulators, the TSOs and the ACER. The TSOs’ case was supported by the following observations and arguments:

- the TSOs have identified that technical price limits are needed for efficient functioning of the market, based on their observations of the developments on the EU balancing energy markets;
- the imbalance settlement price shall guarantee a reliable incentive for BRPs to remain balanced by procuring the quantities on the wholesale energy markets to balance their position, therefore, the imbalance settlement price is intended to reflect the real-time value of energy which requires that balancing energy prices are true scarcity prices;
- the reasons for strong deviations of balancing energy bids from their energy provision costs result from applying marginal pricing principle in the balancing energy market and from the characteristics of balancing energy markets;
- the heterogeneous structures of the balancing energy markets bring the fact that the BSPs with market power are present which brings the risk of market abuse and may lead to exaggeratedly high balancing energy bids to be submitted and activated in the European platforms as well;
- balancing energy prices that exaggerate the real-time value of energy distort price signals and incentives to market participants, TSOs claim that this may lead to disruptive imbalance settlement prices, not reflecting the real-time value of energy anymore;
- BRPs and customers would be exposed to these prices under the current EU target design for balancing energy markets to an unacceptable extent, the TSOs are concerned that BRPs might be driven into bankruptcy through no fault of their own which does not represent an efficient functioning of the market.

In conclusion, the TSOs were suggesting to lower the original technical price limits in order to limit the exposure of BRPs to exaggeratedly high imbalance prices. Nevertheless, among the EU energy regulators the views on the exact level of the new technical price limit were differentiated. Seven regulatory authorities provided individual comments during the consultation phase. All comments received advocated for a lower technical price limit than the one in the approved pricing methodology (99,999 €/MWh), specifically after the transitional period of 48 months when a limit of 15,000 €/MWh would apply. Most comments pointed in the direction of having a permanent lower technical price limit instead of a transitory price limit. The range of the proposed limits included the actual outcomes of the intraday market, a value close to the intraday limit, the proposed transitory value and a value slightly higher than the highest Value of Lost Load (VoLL) among Member States.

The technical price limit of 10,000 €/MWh was also proposed, which is only slightly above the intra-day limit, in order to avoid situations where BSPs withhold their capacity from the market with a significantly lower technical price limit (e.g. intraday market) to keep it for the market with a significantly higher technical price limit (e.g. balancing market). This was supported by the argument that the liquidity of balancing markets is by nature low which provides opportunities for BSPs to bid unreasonably high prices. For this reason a permanent technical price limit following the intra-day limit was supported (with the adjustment mechanism). Equally vivid controversies were observed among market participants involved - some (EFET, Energie-Netherlands, Febeg, RWE Supply and Trading GmbH) even questioned the legality of the TSOs’ proposal and stated that it should be rejected by ACER. However, the ACER referred in this regard to its Decision 01/2020 and noted that Regulation (EU) 2019/943 does not restrict the possibility, provided by Article 30(2) of the EB GL, of introducing technical price limits in the balancing timeframe. Nevertheless, lower technical price limits risk lower market participation - this anxiety was clearly expressed in the consultation process by some stakeholders (EUGENE, INNIO, Uniper SE) and the ACER agreed with this assessment. The problem can be especially problematic for new, flexible and decarbonised technology such as hydrogen power plants). The ACER concluded, however, that "ACER has not made changes to the existing technical price limits as sufficient justification was not provided to demonstrate that they need to change. ACER did introduce transitional price limits which are transitory by nature, in order to facilitate the smooth accession of TSOs to the platforms, and serve the purpose of achieving the objective of the EB Regulation. They are expected to expire as soon as the transitory risks are removed". As ACER only introduced transitional price limits, the limit is set to expire 4 years after the legal deadline to join the European platforms. During this time, TSOs are obliged to report on relevant key performance indicators.

Interestingly, some respondents (EDF, Eurelectric, UFE) observed that “symmetricity of technical price limit is not a must” (e.g. day-ahead technical price limits) and therefore, called for a debate on the rationale for the value of this minimum price limit. ACER, however, explained in its Decision that “having different values for positive and negative price limits is not justified on the basis either of the TSOs’ need or the product”. Therefore, ACER has proposed that if the upper transitional price limit is increased due to an increase of the ID limit, the lower transitional price limit is decreased by the same absolute value.

 

Transparency requirements

 

According to Article 12(3)(b)-(e) of the NC EB each TSO is required to publish:

1. information on all balancing energy bids from its scheduling area or scheduling areas, anonymised where necessary, no later than 30 min after the end of the relevant market time unit. The information shall include:
(i) type of product;
(ii) validity period;
(iii) offered volumes;
(iv) offered prices;
(v) information on whether the bid was declared as unavailable;

2. information on whether the balancing energy bid was converted from a specific product or from an integrated scheduling process no later than 30 min after the end of the relevant market time unit;

3. information regarding how balancing energy bids from specific products or from integrated scheduling process have been converted into balancing energy bids from standard products no later than 30 min after the end of the relevant market time unit;

4. aggregated information on balancing energy bids no later than 30 min after the end of the relevant market time unit, which shall include:
(i) total volume of offered balancing energy bids;
(ii) total volume of offered balancing energy bids separately per type of reserves;
(iii) total volume of offered and activated balancing energy bids separately for standard and specific products;
(iv) volume of unavailable bids separately per type of reserves.

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 energy

 

Article 44(2) of the said Commission Regulation (EU) 2017/2195 of 23 November 2017 stipulates that TSOs do not incur economic gains or losses with regard to the financial outcome of settlements of balancing energy and that any positive or negative financial outcome as a result of the above settlements must be passed on to network users in accordance with the applicable national rules.

 


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.

 

Requirements for the procurement of balancing energy are stipulated in Articles 29 - 31 of the said Commission Regulation (EU) 2017/2195 of 23 November 2017 - see box.

 

quote

 

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

Article 29
Activation of balancing energy bids from common merit order list
1.   In order to maintain the system's balance in accordance with Article 127, Article 157 and Article 160 of Regulation (EU) 2017/1485, each TSO shall use cost-effective balancing energy bids available for delivery in its control area based on common merit order lists or another model as set with the proposal by all TSOs pursuant to paragraph 5 of Article 21.
2.   TSOs shall not activate balancing energy bids before the corresponding balancing energy gate closure time, except in the alert state or the emergency state when such activations help alleviate the severity of these system states and except when the bids serve purposes other than balancing pursuant to paragraph 3.
3.   By one year after the entry into force of this Regulation, all TSOs shall develop a proposal for a methodology for classifying the activation purposes of balancing energy bids. This methodology shall:
(a) describe all possible purposes for the activation of balancing energy bids;
(b) define classification criteria for each possible activation purpose.
4.   For each balancing energy bid activated from the common merit order list, the TSO activating the bid shall define the activation purpose based on the methodology pursuant to paragraph 3. The activation purpose shall be notified and visible to all TSOs through the activation optimisation function.
5.   In the event that the activation of balancing energy bids deviates from the results of the activation optimisation function, the TSO shall publish the information about the reasons for the occurrence of such deviation in a timely manner.
6.   The request for activation of a balancing energy bid from the activation optimisation function shall oblige the requesting TSO and connecting TSO to accept the firm exchange of balancing energy. Each connecting TSO shall ensure the activation of the balancing energy bid selected by the activation optimisation function. The balancing energy shall be settled pursuant to Article 50 and between the connecting TSO and the balancing service provider pursuant to Chapter 2 of Title V.
7.   The activation of balancing energy bids shall be based on a TSO-TSO model with a common merit order list.
8.   Each TSO shall submit all necessary data for the operation of the algorithm in paragraphs 1 and 2 of Article 58 to the activation optimisation function in accordance with the rules established pursuant to Article 31( 1).
9.   Each connecting TSO shall submit, prior to the TSO energy bid submission gate closure time, all balancing energy bids received from balancing service providers to the activation optimisation function, taking into account the requirements in Articles 26 and 27. The connecting TSOs shall not modify or withhold balancing energy bids, except for:
(a) balancing energy bids related to Articles 26 and 27;
(b) balancing energy bids that are manifestly erroneous and include an unfeasible delivery volume;
(c) balancing energy bids that are not forwarded to the European platforms in accordance with paragraph 10.
10.   Each TSO applying a self-dispatching model and operating within a scheduling area with a local intraday gate closure time after the balancing energy gate closure time pursuant to Article 24 may develop a proposal to limit the amount of bids that is forwarded to the European platforms pursuant to Articles 19 to 21. The bids forwarded to the European platforms shall always be the cheapest bids. This proposal shall include:
(a) the definition of the minimum volume that shall be forwarded to the European platforms. The minimum volume of bids submitted by the TSO shall be equal to or higher than the sum of the reserve capacity requirements for its LFC block according to Articles 157 and 160 of Regulation (EU) 2017/1485 and the obligations arising from the exchange of balancing capacity or sharing of reserves;
(b) the rules to release the bids that are not submitted to the European platforms and the definition of the point in time at which the concerned balancing service providers shall be informed of the release of its bids.
11.   At least once every two years after the approval of the proposal in paragraph 10 by the respective regulatory authority, all TSOs shall assess the impact of limiting the volume of bids sent to the European platforms and the functioning of the intraday market. This assessment shall include:
(a) an evaluation by the relevant TSOs on the minimum volume of bids that shall be forwarded to the European platforms pursuant to paragraph 10(a);
(b) a recommendation to the relevant TSOs limiting balancing energy bids.
Based on this assessment, all TSOs shall make a proposal to all regulatory authorities to review the minimum volume of balancing energy bids that shall be forwarded to the European platforms pursuant to paragraph 10(a).
12.   Each requesting TSO may request the activation of balancing energy bids from the common merit order lists up to the total volume of balancing energy. The total volume of balancing energy that can be activated by the requesting TSO from balancing energy bids from the common merit order lists is calculated as a sum of volumes of:
(a) balancing energy bids submitted by the requesting TSO not resulting from sharing of reserves or exchange of balancing capacity;
(b) balancing energy bids submitted by other TSOs as a result of balancing capacity procured on behalf of the requesting TSO;
(c) balancing energy bids resulting from the sharing of reserves under the condition that the other TSOs participating in the sharing of reserves have not already requested the activation of those shared volumes.
13.   All TSOs may establish in the proposals for the implementation frameworks for the European platforms pursuant to Articles 19, 20 and 21 the conditions or situations in which the limits set out in paragraph 12 shall not apply. When a TSO requests balancing energy bids beyond the limit set out in paragraph 12, all other TSOs shall be informed.
14.   Each TSO may declare the balancing energy bids submitted to the activation optimisation function unavailable for the activation by other TSOs because they are restricted due to internal congestion or due to operational security constraints within the connecting TSO scheduling area.


Article 30
Pricing for balancing energy and cross-zonal capacity used for exchange of balancing energy or for operating the imbalance netting process
1.   By one year after the entry into force of this Regulation, all TSOs shall develop a proposal for a methodology to determine prices for the balancing energy that results from the activation of balancing energy bids for the frequency restoration process pursuant to Articles 143 and 147 of Regulation (EU) 2017/1485, and the reserve replacement process pursuant to Articles 144 and 148 of Regulation (EU) 2017/1485. Such methodology shall:
(a) be based on marginal pricing (pay-as-cleared);
(b) define how the activation of balancing energy bids activated for purposes other than balancing affects the balancing energy price, while also ensuring that at least balancing energy bids activated for internal congestion management shall not set the marginal price of balancing energy;
(c) establish at least one price of balancing energy, for each imbalance settlement period;
(d) give correct price signals and incentives to market participants;
(e) take into account the pricing method in the day-ahead and intraday timeframes.
2.   In case TSOs identify that technical price limits are needed for efficient functioning of the market, they may jointly develop as part of the proposal pursuant to paragraph 1 a proposal for harmonised maximum and minimum balancing energy prices, including bidding and clearing prices, to be applied in all scheduling areas. In such a case, harmonised maximum and minimum balancing energy prices shall take into account the maximum and minimum clearing price for day-ahead and intraday timeframes pursuant to Regulation (EU) 2015/1222.
3.   The proposal pursuant to paragraph 1 shall also define a methodology for pricing of cross-zonal capacity used for exchange of balancing energy or for operating the imbalance netting process. Such methodology shall be consistent with the requirements established under Regulation (EU) 2015/1222, and:
(a) reflect market congestion;
(b) be based on the prices for balancing energy from activated balancing energy bids, determined in accordance either with the pricing method pursuant to paragraph 1(a), or if applicable, the pricing method pursuant to paragraph 5;
(c) not apply any additional charges for the exchange of balancing energy or for operating the imbalance netting process, except a charge to compensate losses if this charge is also taken into account in other timeframes.
4.   The harmonised pricing method defined in paragraph 1 shall apply to balancing energy from all standard and specific products pursuant to Article 26(3)(a). For specific products pursuant to Article 26(3)(b), the concerned TSO may propose a different pricing method in the proposal for specific products pursuant to Article 26.
5.   Where all TSOs identify inefficiencies in the application of the methodology proposed pursuant to paragraph 1(a), they may request an amendment and propose a pricing method alternative to the pricing method in paragraph 1(a). In such case, all TSOs shall perform a detailed analysis demonstrating that the alternative pricing method is more efficient.


Article 31
Activation optimisation function
1.   All TSOs shall establish an activation optimisation function in accordance with Article 29 and this Article for the optimisation of the activation of balancing energy bids from different common merit order lists. This function shall take into account at least:
(a) activation processes and technical constrains from different balancing energy products;
(b) operational security;
(c) all balancing energy bids included in the compatible common merit order lists;
(d) the possibility to net the counteracting activation requests from TSOs;
(e) submitted activation requests of all TSOs;
(f) available cross-zonal capacity.
2.   Common merit order lists shall consist of balancing energy bids from standard products. All TSOs shall establish the necessary common merit order lists for the standard products. Upward and downward balancing energy bids shall be separated in different common merit order lists.
3.   Each activation optimisation function shall use at least one common merit order list for upward balancing energy bids and one common merit order list for downward balancing energy bids.
4.   TSOs shall ensure that the balancing energy bids submitted to the common merit order lists are expressed in euros and make reference to the market time unit.
5.   Depending on the requirement for standard products for balancing energy, TSOs may create more common merit order lists.
6.   Each TSO shall submit its activation requests for balancing energy bids to the activation optimisation function.
7.   The activation optimisation function shall select balancing energy bids and request the activation of selected balancing energy bids from the connecting TSOs where the balancing service provider, associated with the selected balancing energy bid, is connected.
8.   The activation optimisation function shall submit the confirmation of the activated balancing energy bids to the TSO requesting the activation of the balancing energy bids. The activated balancing service providers shall be responsible for delivering the requested volume until the end of the delivery period.
9.   All TSOs that operate the frequency restoration process and the reserve replacement process to balance their LFC area shall strive to use all balancing energy bids from relevant common merit order lists to balance the system in the most efficient way, taking into account operational security.
10.   TSOs that do not use the reserve replacement process to balance their LFC area shall strive to use all balancing energy bids from relevant common merit order lists for frequency restoration reserves to balance the system in the most efficient way, taking into account operational security.
11.   Except in the normal state, TSOs may decide to balance the system using only the balancing energy bids from balancing service providers in its own control area if such decision helps alleviate the severity of the current system state. The TSO shall publish a justification for such decision without undue delay.

 

 

Settlement of balancing energy

 

Requirements for the settlement of balancing energy are stipulated in Articles 45 - 49 of the said Commission Regulation (EU) 2017/2195 of 23 November 2017 - see box. Each TSO calculates the activated volume of balancing energy at least for:
(a) each imbalance settlement period (ISP):
(b) its imbalance areas;
(c) each direction, with a negative sign indicating relative withdrawal by the balancing service provider, and a positive sign indicating relative injection by the balancing service provider.

Each connecting TSO settles all activated volumes of balancing energy calculated pursuant to the above rules with the concerned balancing service providers.

 

quote

 

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

Article 45

Balancing energy calculation

1. As regards the settlement of balancing energy for at least the frequency restoration process and the reserve replacement process, each TSO shall establish a procedure for:
(a) the calculation of the activated volume of balancing energy based on requested or metered activation;
(b) claiming the recalculation of the activated volume of balancing energy.
2. Each TSO shall calculate the activated volume of balancing energy according to the procedures pursuant to paragraph 1(a) at least for:
(a) each imbalance settlement period;
(b) its imbalance areas;
(c) each direction, with a negative sign indicating relative withdrawal by the balancing service provider, and a positive sign indicating relative injection by the balancing service provider.
3. Each connecting TSO shall settle all activated volumes of balancing energy calculated pursuant to paragraph 2, with the concerned balancing service providers.


Article 46

Balancing energy for frequency containment process

1. Each connecting TSO may calculate and settle the activated volume of balancing energy for the frequency containment process with balancing service providers pursuant to paragraphs 1 and 2 of Article 45.
2. The price, be it positive, zero or negative, of the activated volume of balancing energy for the frequency containment process shall be defined for each direction as defined in Table 1: 

Table 1

Payment for balancing energy

 

  Balancing energy price positive Balancing energy price negative
Positive balancing energy Payment from TSO to BSP Payment from BSP to TSO
Negative balancing energy Payment from BSP to TSO  Payment from TSO to BSP

 

Article 47

Balancing energy for frequency restoration process

1. Each connecting TSO shall calculate and settle the activated volume of balancing energy for the frequency restoration process with balancing service providers pursuant to paragraphs 1 and 2 of Article 45
2. The price, be it positive, zero or negative, of the activated volume of balancing energy for the frequency restoration process shall be defined for each direction pursuant to Article 30 as defined in the Table 1.


Article 48

Balancing energy for reserve replacement process

1. Each connecting TSO shall calculate and settle the activated volume of balancing energy for the reserve replacement process with balancing service providers pursuant to paragraphs 1 and 2 of Article 45.
2. The price, be it positive, zero or negative, of the activated volume of balancing energy for reserve replacement process shall be defined for each direction pursuant to Article 30 as defined in the Table 1.


Article 49

Imbalance adjustment to the balance responsible party

1. Each TSO shall calculate an imbalance adjustment to be applied to the concerned balance responsible parties for each activated balancing energy bid.
2. For imbalance areas where several final positions for a single balance responsible party are calculated pursuant to Article 54(3), an imbalance adjustment may be calculated for each position.
3. For each imbalance adjustment, each TSO shall determine the activated volume of balancing energy calculated pursuant to Article 45 and any volume activated for purposes other than balancing.

  

 

Concluding remarks


It is sometimes said that the balancing energy market has high barriers to entry, which discourages many potential balancing energy providers (see Annex II to the ACER Decision 16/2020 - Evaluation of responses to the public consultation on the methodology for classifying the activation purposes of balancing energy bids). Among those barriers are:
- investment and maintenance of systems;
- uncertain revenues, not at least due to frequent regulatory changes (EU and Member States);
- high requirements in terms of availability and redundancy.

ACER considers these observations “very important”, so, there is a chance that they will be placed on the regulatory agenda.

 

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