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Balancing market
European Union Electricity Market Glossary

 

'Balancing market' within the framework of the European Union Internal Electricty Market means the entirety of institutional, commercial and operational arrangements that establish market-based management of the function of electricity balancing in accordance with European Union Network Codes.

 

 

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

 

‘balancing market’ means the entirety of institutional, commercial and operational arrangements that establish market-based management of balancing

 

Well-functioning: 

 

intraday electricity market and 

 

day-ahead electricity market;

 

act as a foundation for the balancing market, in which the role of Transmission System Operator (TSO) is to ensure that, considering the other markets’ results, demand and supply remain balanced by operating the system close to real time (ENTSO-E, Electricity balancing in Europe, an overview of European balancing market and electricity balancing guideline, November 2018).

 

Specifically, balancing market is the final platform, through which the TSOs settle any deviations remaining after the closure of intraday markets and after the determination of the final schedules.

 

Balancing market legal framework focuses on the following main areas:

 

- balance responsibility and the role of Balance Responsible Parties (BRPs),

 

- balancing service provision, and

 

- imbalance settlement.

 

In fact, there are two balancing markets, which implement the balancing mechanism:

 

- a balancing capacity market - where generators or a demand-side submit bids or offers to deliver balancing energy in real-time;

 

- a balancing energy market - where TSOs activate these contracts concluded in the balancing capacity market, which offer the least cost (and the required technical specifications), the participants in this market specify the price for the increase or decrease of electricity injection or withdrawal.

 

In the broader sense, the elements of the balancing market/mechanism can be seen also in such specific electricity markets as:

 

- the market for ancillary services (where the balancing mechanism is used for the procurement of reactive power or other non-frequency ancillary services, or

 

- electricity capacity markets.

 

The electricity balancing market is so important that legal provisions affecting its functioning are present in nearly all European electricity network codes.

 

Nevertheless, the most relevant in this regard is the Network Code on Electricity Balancing (Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing - EBGL or NC EB).

 

The second most noteworthy legislative piece is the Network Code on System Operation (Commission Regulation (EU) 2017/1485 of 2 August 2017 establishing a guideline on electricity transmission system operation - SOGL) stipulating the types and sizing of reserves and the respective roles and responsibilities.

 

The wide variety of balancing market designs can be observed in Europe.

 

The balancing markets differ significantly from one EU country to another due to historical national specificities (generation portfolios, significant presence of internal congestions and level of interconnections with foreign markets), the management thereof has been historically entrusted to individual TSOs being the single entities with sufficient information on system frequency, national generation, consumption and network topology to efficiently balance the system.

 

In the era of the single EU Internal Electricity Market, the wide variety of balancing market designs existing in Europe is generally perceived as an important barrier for their integration and the cause of unnecessary complexities for cross-border trade (Commission Staff Working Document, Impact Assessment of 23 November 2017 {SWD(2017) 383 final}, p. 17).

 

The proper design of balancing markets is essential to enable efficient electricity price formation, in particular in the intra-day markets.

 

Intra-day prices should correlate well with imbalance prices, because the latter represent the prices that BRPs pay (or receive) for their residual imbalances.

 

This implies that all electricity, consumed or produced, should be covered by balancing responsibility, and that generation units from intermittent generation should not receive special treatment for imbalances.

 

Otherwise, renewable electricity generators will have no incentive to trade in the intra-day market (ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Markets in 2015, September 2016 (MMR 2015), p. 49).

 

The aforementioned ACER/CEER Report of September 2016 refers also to the fact, with regard to balancing responsibility, renewable electricity generators are not treated in the same way as conventional generators in at least 15 EU Member States.

 

Furthermore, imbalance prices should be fully cost-reflective at any time, including times of scarcity.

 

Due to a combination of factors this is not always the case in electricity balancing markets.

 

The technical framework necessary for the development of cross-border balancing markets is based on provisions on load-frequency control (LFC) and reserves stipulated in the Network Code on System Operation.

 

According to the ACER's analysis, the large share of balancing capacity procurement costs in the overall costs of balancing in most of the balancing markets analysed and some inefficiencies of national balancing markets continued to dampen balancing energy prices (and imbalance charges), which may not always accurately reflect the value of flexibility in real time, particularly at times of scarcity.

 

Some countries are considering, or have recently introduced, measures to enable scarcity pricing in the balancing timeframe, e.g. Great Britain.

 

Moreover, the said ACER’s analysis confirms the presence of large disparities in balancing energy and balancing capacity prices, suggesting a considerable potential for further cross-border exchanges of balancing services in Europe.

 

Despite an increase in the exchanged amount of balancing capacity observed recently (e.g. following the go-live of the project for a common procurement of Frequency Containment Reserves that involves the German, Austrian, Dutch and Swiss TSOs), the overall cross-border exchange of balancing services continued to be limited in 2015 (MMR 2015, p. 51).

 

Commission Staff Working Document of 30 November 2016 ({COM(2016) 752 final} SWD(2016) 385 final, p. 40) argues that the maximum price in any forward market is constrained by the maximum prices charged in the balancing market, which functions as an implicit price cap for electricity prices in forward markets.

 

Some EU Member States already have no price caps in the balancing market, yet have not experienced prices reflecting the value of lost load (VOLL) even when there has been scarcity.

 

This can be the case when the balancing price, while not being subject to a cap, does not reflect the full cost of the services used to balance the market or the full cost of the unmet consumer demand (represented by VOLL).

 

Member States should therefore ensure that balancing market rules, even in the absence of an explicit price cap, do reflect the full costs of balancing and do not implicitly constrain electricity prices in forward markets.

 

The policies and measures related to the roll-out of cross-border balancing markets should be described in the national climate and energy plans, the EU Member States are required to prepare under Article 3 of the Regulation of the European Parliament and of the Council on the Governance of the Energy Union.

 

  

 

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 Balancing market

 

1. All market participants shall have access to the balancing market, be it individually or through aggregation. Balancing market rules and products shall respect the need to accommodate increasing shares of variable generation as well as increased demand responsiveness and the advent of new technologies.

 

2. Balancing markets shall be organised in such a way as to ensure effective non-discrimination between market participants taking account of the different technical capability of generation from variable renewable sources and demand side response and storage.

 

3. Balancing energy shall be procured separately from balancing capacity. Procurement processes shall be transparent while at the same time respecting confidentiality.

 

4. Balancing markets shall ensure operational security whilst allowing for maximum use and efficient allocation of cross-zonal capacity across timeframes in accordance with Article 15.

 

5. 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.

 

6. The imbalances shall be settled at a price that reflects the real time value of energy.

 

7. The dimensioning of reserve capacity and the amount of balancing capacity that needs to be procured shall be carried out on a regional level in accordance with in accordance with point 7 and 8 of Annex 1.

 

8. The procurement of balancing capacity shall be performed on a regional level in
accordance with point 8 of Annex 1. The procurement shall be 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.

 

9. The procurement of upward balancing capacity and downward balancing capacity shall be carried out separately. The contracting should be performed for not longer than one day before the provision of the balancing capacity and the contracting period shall have a maximum period of one day.

 

10. Transmission system operators shall publish close to real-time information on the current balancing state of their control areas, the imbalance price and the balancing energy price.

 

 

 

 

 

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

 

Article 6

Balancing market

 

1. Balancing markets, including prequalification processes, shall be organised in such a way as to:

(a) ensure effective non-discrimination between market participants taking account of the different technical needs of the electricity system and the different technical capabilities of generation sources, energy storage and demand response;

(b) ensure that services are defined in a transparent and technologically neutral manner and are procured in a transparent, market-based manner;

(c) ensure non-discriminatory access to all market participants, individually or through aggregation, including for electricity generated from variable renewable energy sources, demand response and energy storage;

(d) respect the need to accommodate the increasing share of variable generation, increased demand responsiveness and the advent of new technologies.

 

2. 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.

 

3. Balancing markets shall ensure operational security whilst allowing for maximum use and efficient allocation of cross-zonal capacity across timeframes in accordance with Article 17.

 

4. The settlement of balancing energy for standard balancing products and specific balancing products shall 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 shall 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.

Transmission system operators applying a central dispatching model may establish additional rules in accordance with the guideline on electricity balancing adopted on the basis of Article 6(11) of Regulation (EC) No 714/2009.

 

5. The imbalances shall be settled at a price that reflects the real-time value of energy.

 

6. Each imbalance price area shall be equal to a bidding zone, except in the case of a central dispatching model where an imbalance price area may constitute a part of a bidding zone.

 

7. The dimensioning of reserve capacity shall be performed by the transmission system operators and shall be facilitated at regional level.

 

8. The procurement of balancing capacity shall be performed by the transmission system operator and may be facilitated at a regional level. Reservation of cross-border capacity to that end may be limited. The procurement of balancing capacity shall be market-based and organised in such a way as to be non-discriminatory between market participants in the prequalification process in accordance with Article 40(4) of Directive (EU) 2019/944 whether market participants participate individually or through aggregation.

Procurement of balancing capacity shall be based on a primary market unless and to the extent that the regulatory authority has provided for a derogation to allow the use of other forms of market-based procurement on the grounds of a lack of competition in the market for balancing services. Derogations from the obligation to base the procurement of balancing capacity on use of primary markets shall be reviewed every three years.

 

9. The procurement of upward balancing capacity and downward balancing capacity shall be carried out separately, unless the regulatory authority approves a derogation from this principle on the basis that this would result in higher economic efficiency as demonstrated by an evaluation performed by the transmission system operator. Contracts for balancing capacity shall not be concluded more than one day before the provision of the balancing capacity and the contracting period shall be no longer than one day, unless and to the extent that the regulatory authority has approved the earlier contracting or longer contracting periods to ensure the security of supply or to improve economic efficiency.

Where a derogation is granted, for at least 40 % of the standard balancing products and a minimum of 30 % of all products used for balancing capacity, contracts for the balancing capacity shall be concluded for no more than one day before the provision of the balancing capacity and the contracting period shall be no longer than one day. The contracting of the remaining part of the balancing capacity shall be performed for a maximum of one month in advance of the provision of balancing capacity and shall have a maximum contractual period of one month.

 

10. At the request of the transmission system operator, the regulatory authority may decide to extend the contractual period of the remaining part of balancing capacity referred to in paragraph 9 to a maximum period of twelve months provided that such a decision is limited in time, and the positive effects in terms of lowering of costs for final customers exceed the negative impacts on the market. The request shall include:
(a) the specific period during which the exemption would apply;
(b) the specific volume of balancing capacity to which the exemption would apply
(c) an analysis of the impact of the exemption on the participation of balancing resources; and
(d) a justification for the exemption demonstrating that such an exemption would lead to lower costs to final customers.

 

11. Notwithstanding paragraph 10, from 1 January 2026 contract periods shall not be longer than six months.

 

12. By 1 January 2028, regulatory authorities shall report to the Commission and ACER on the share of the total capacity covered by contracts with a duration or a procurement period of longer than one day.

 

13. Transmission 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.

 

14. Transmission system operators may, where standard balancing products are not sufficient to ensure operational security or where some balancing resources cannot participate in the balancing market through standard balancing products, propose, and the regulatory authorities may approve, derogations from paragraphs 2 and 4 for specific balancing products which are activated locally without exchanging them with other transmission system operators.

 

Proposals for derogations shall include a description of measures proposed to minimise the use of specific products, subject to economic efficiency, a demonstration that the specific products do not create significant inefficiencies and distortions in the balancing market either inside or outside the scheduling area, as well as, where applicable, the rules and information for the process for converting the balancing energy bids from specific balancing products into balancing energy bids from standard balancing products.

 

 

 

 

 

 

 

IMG 0744

    Documentation    

 

 

 

 

 

 

Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast), Article 6

  

Electricity Balancing Network Code (Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing - NC EB or EBGL), Article 2(2)

 

Network Code on System Operation (Commission Regulation (EU) 2017/1485 of 2 August 2017 establishing a guideline on electricity transmission system operation - SOGL)

 

Commission Staff Working Document, Impact Assessment of 23.11.2017 accompanying the document Commission Regulation establishing a guideline on electricity balancing {SWD(2017) 383 final}, p. 15 - 17

 

ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Market in 2015, September 2016, p. 49, 51

 

Electricity balancing in Europe, an overview of European balancing market and electricity balancing guideline, ENTSO-E, November 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 5

 

Commission Staff Working Document of 30.11.2016 Accompanying the document Report from the Commission Final Report of the Sector Inquiry on Capacity Mechanisms {COM(2016) 752 final} SWD(2016) 385 final, p. 40

 

The EU electricity network codes, Technical report, Leonardo Meeus, Tim Schittekatte, European University Institute, Badia Fiesolana, February 2018, p. 6

 

 

 

 

 

 

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Last Updated on Monday, 16 September 2019 22:19
 

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