Category: European Union Electricity Market Glossary

Published: 30 August 2015

Last Updated: 29 February 2024

 

The purpose of the reform of imbalance netting process in the European electricity market is to reduce the overall volume of activated balancing reserves in Europe and the national balancing markets.

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. 3 October 2022 ACER Decision 16/2022 on the Amendment to the Implementation framework for a European platform for the imbalance netting process

 

According to Article 3(2)(128) of the Commission Regulation (EU) 2017/1485 of 2 August 2017 establishing a guideline on electricity transmission system operation (Network Code on System Operation, SOGL) the 'imbalance netting process' is a process agreed between Transmission System Operators (TSOs) that allows avoiding the simultaneous activation of frequency restoration reserve (FRR) in opposite directions, taking into account the respective FRCEs as well as the activated FRR and by correcting the input of the involved FRPs accordingly. In the above definition:

- ‘frequency restoration control error’ or ‘FRCE’ means the control error for the FRP which is equal to the ACE of a LFC area or equal to the frequency deviation where the LFC area geographically corresponds to the synchronous area (Article 3(2)(43) of the Network Code on System Operation),

- ‘frequency restoration process’ or ‘FRP’ means a process that aims at restoring frequency to the nominal frequency and, for synchronous areas consisting of more than one LFC area, a process that aims at restoring the power balance to the scheduled value (Article 3(2)(42) of the Network Code on System Operation),

- ‘area control error’ or ‘ACE’ means the sum of the power control error (‘ΔP’), that is the real-time difference between the measured actual real time power interchange value (‘P’) and the control program (‘P0’) of a specific LFC area or LFC block and the frequency control error (‘K*Δf’), that is the product of the K-factor and the frequency deviation of that specific LFC area or LFC block, where the area control error equals ΔP+K*Δf (Article 3(2)(19) of the Network Code on System Operation).

Article 146(9) of the Network Code on System Operation specifies further, where an LFC block consists of more than one LFC area and the reserve capacity on FRR as well as the reserve capacity on RR is calculated based on the LFC block imbalances, all TSOs of the same LFC block shall implement an imbalance netting process and interchange the maximum amount of imbalance netting power defined in Article 146(6) of the Network Code on System Operation with other LFC areas of the same LFC block.

Article 146(10) of the Network Code on System Operation details that, where an imbalance netting process is implemented for LFC areas of different synchronous areas, all TSOs shall interchange the maximum amount of imbalance netting power defined in Article 146(6) of the Network Code on System Operation with other TSOs of the same synchronous area participating in that imbalance netting process.

Agency for the Cooperation of Energy Regulators (ACER) in its Recommendation No 03/2015 of 20 July 2015 on the Network Code on Electricity Balancing proposed that the Regional Integration Model (RIM) for the imbalance netting process should be composed of single Coordinated Balancing Area (CoBA) covering the whole Continental Europe synchronous area. This proposal considers that imbalance netting in other synchronous areas is already implicitly implemented. The Continental-wide coverage should ensure the necessary consistency between CoBA proposed for automatic frequency restoration reserve (FRR) and manual FRR and the CoBA for imbalance netting. An increased utilisation of imbalance netting has been recently observed in Europe.

 

Commission Regulation (EU) 2017/1485 of 2 August 2017 establishing a guideline on electricity transmission system operation (Network Code on System Operation)   Article 146 Imbalance netting process 1.   The control target of the imbalance netting process shall aim at reducing the amount of simultaneous counteracting FRR activations of the different participating LFC areas by imbalance netting power interchange. 2.   Each TSO shall have the right to implement the imbalance netting process for the LFC areas in the same LFC block, between different LFC blocks or between different synchronous areas, by concluding an imbalance netting agreement. 3.   TSOs shall implement the imbalance netting process in a way which does not affect: (a) the stability of the FCP of the synchronous area or synchronous areas involved in the imbalance netting process; (b) the stability of the FRP and the RRP of each LFC area operated by participating or affected TSOs; and (c) operational security. 4.   TSOs shall implement the imbalance netting power interchange between LFC areas of a synchronous area in at least one of the following ways: (a) by defining an active power flow over a virtual tie-line which shall be part of the FRCE calculation; (b) by adjusting the active power flows over HVDC interconnectors. 5.   TSOs shall implement the imbalance netting power interchange between LFC areas of different synchronous areas by adjusting the active power flows over HVDC interconnectors. 6.   TSOs shall implement the imbalance netting power interchange of a LFC area in a way which does not exceed the actual amount of FRR activation necessary to regulate the FRCE of that LFC area to zero without imbalance netting power interchange. 7.   All TSOs participating in the same imbalance netting process shall ensure that the sum of all imbalance netting power interchanges is equal to zero. 8.   The imbalance netting process shall include a fallback mechanism which shall ensure that the imbalance netting power interchange of each LFC area is zero or limited to a value for which operational security can be guaranteed. 9.   Where a LFC block consists of more than one LFC area and the reserve capacity on FRR as well as the reserve capacity on RR is calculated based on the LFC block imbalances, all TSOs of the same LFC block shall implement an imbalance netting process and interchange the maximum amount of imbalance netting power defined in paragraph 6 with other LFC areas of the same LFC block. 10.   Where an imbalance netting process is implemented for LFC areas of different synchronous areas, all TSOs shall interchange the maximum amount of imbalance netting power defined in paragraph 6 with other TSOs of the same synchronous area participating in that imbalance netting process. 11.   Where an imbalance netting process is implemented for LFC areas which are not part of the same LFC block, all TSOs of the LFC blocks involved shall comply with the obligations in Article 141(5) regardless of imbalance netting power interchange.

 

Imbalance netting currently covers an important share of the needs of balancing energy in several European markets.

Pursuant to data referred to in the ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2014, November 2015 (p. 213), in the Netherlands imbalance netting avoided almost 50% of the electricity system's needs of balancing energy in 2014 (the same figure is quoted by the ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Markets in 2015, September 2016 (p. 59) for the year 2015).

In the Nordic region, where balancing energy markets are currently integrated, imbalance netting across borders is currently used to balance the electricity systems. However, it should be noted that the Nordic electricity systems are balanced as one single responsibility area and, the cross-border exchange of balancing energy cannot be easily disentangled from imbalance netting across borders and from system imbalance at the (national) TSOs level.

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 (p. 54) that in 2016 the utilisation of imbalance netting continued to be the most successfully applied tool to exchange balancing services across borders. In 2016 the imbalance netting covered an important share of the needs of balancing energy in several European markets:

- in Latvia, the Netherlands and Germany, imbalance netting avoided 84%, 57% and 57%, respectively, of the electricity system’s balancing energy needs in 2016,
- in the Nordic region, the combined application of imbalance netting and cross-zonal exchange of balancing energy covered around 80% of the electricity system’s balancing energy needs in 2016.

Links     ENTSO-E website on imbalance netting (website for IN- Platform)   LFC Areas

The application of imbalance netting and exchange of balancing energy was estimated in the said Report of October 2017 at approximately 19% of their potential in 2016 for a selection of 15 borders where sufficient information was available. Although this value indicated a significant improvement (almost doubled) compared to the previous year, it was still relatively low when compared to the level of efficiency recorded in the preceding day-ahead (86%) and intraday (50%) timeframes in 2016.

Article 15(2) of the Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), being part of the so-called ’Winter Energy Package’ of 30 November 2016 (COM(2016) 861 final 2016/0379 (COD)), stipulates that when cross-zonal capacity is available after the intraday cross-zonal gate closure time, TSOs must use the cross-zonal capacity for the exchange of balancing energy or for operating the imbalance netting process.

The Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing (Network Code on Electricity Balancing, NC EB, EBGL) also mentions the imbalance netting process in Article 37(1) where it states:

“After the intraday cross-zonal gate closure time, TSOs shall continuously update the availability of cross-zonal capacity for the exchange of balancing energy or for operating the imbalance netting process. Cross-zonal capacity shall be updated every time a portion of cross-zonal capacity has been used or when cross-zonal capacity has been recalculated.”

 

European platform for the imbalance netting process (IGCC, IN-Platform)

 

Recital 10 of the said Commission Regulation (EU) 2017/2195 underlines that the integration of balancing energy markets should be facilitated with the establishment of common European platforms for operating the imbalance netting process and enabling the exchange of balancing energy from frequency restoration reserves and replacement reserves. The use of the European platform for the imbalance netting process (the IN-Platform) is compulsory for all TSOs of the Continental Europe synchronous area performing the automatic frequency restoration process. The procedure for establishing the European platform for imbalance netting process is stipulated in Article 22 of the said Regulation - see box below.

On 15 January 2018 ENTSO-E has presented ”All TSOs’ proposal for the implementation framework for a European platform for the imbalance netting process in accordance with Article 22 of Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing“. The above proposal applies solely to the imbalance netting process, out of the scope are:

- the European platforms for frequency restoration reserves processes and replacement reserves (RR) process,
- the proposal for the pricing of balancing energy and cross-zonal capacity used for exchange of balancing energy or for operating the imbalance netting process pursuant to Article 30 of the said Commission Regulation (EU) 2017/2195 of 23 November 2017,

- the proposal for TSO-TSO settlement rules applicable to the imbalance netting process pursuant to Article 50 of said Commission Regulation (EU) 2017/2195 of 23 November 2017.

The implementation project chosen by ENTSO-E in February 2016 to become the future European Platform for the imbalance netting process (IN-Platform), is the International Grid Control Cooperation (IGCC). IGCC was launched in October 2010 as a regional project and covers 20 countries (23 TSOs) across continental Europe, including all those that are required to implement the IN-Platform according to the said Commission Regulation (EU) 2017/2195. Among IGCC’s 20 member TSOs are: AT (APG), BE (Elia), CH (Swissgrid), CZ (CEPS), DE (50Hz, Amprion, TenneT DE, TransnetBW), DK (Energinet), EL (ADMIE), FR (RTE), HR (HOPS), IT (Terna), NL (TenneT NL), PL (PSE), PT (REN), RO (Transelectrica), RS (EMS), SI (ELES) and ES (REE), and 3 observer TSOs are BG (ESO), HU (MAVIR) and SK (SEPS).

It is foreseen that the implementation of the European platform for the exchange of balancing energy from the frequency restoration reserve with automatic activation (aFRR-Platform, PICASSO) implements an implicit imbalance netting process. Hence, in case the geographical region of the IN-Platform is part of the geographical region of the aFRR-Platform, a separate algorithm for the IN-Platform will no longer be necessary.

The frequency containment reserve (FCR) is not considered as it is out of scope of the said Commission Regulation (EU) 2017/2195 (EBGL). The available cross-zonal capacity used for imbalance netting process will take into account previous balancing processes. The respective algorithm will consider available cross-zonal capacities defined between LFC areas and will make sure that the cross-border exchange for imbalance netting from the optimization must not exceed the cross-zonal capacity remaining after previous balancing processes. In order to respect operational security limitations and handle or avoid congested situations TSOs shall also be able to limit the available cross-zonal capacities. The algorithm is then required to take these manual limitations into account in the optimisation result.

Bidding zone borders inside an LFC area and the respective cross-zonal capacity limitations shall not be explicitly considered by the optimisation algorithm, for the reasons that the aFRR demand is defined and located per LFC area and it is not possible to calculate the inner-bidding zone cross-border flows in such a case.

According to the All TSOs’ proposal of 18 June 2018 for the implementation framework for a European platform for the imbalance netting process in accordance with Article 22 of Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing, ENTSO-E inputs to the imbalance netting process function are, at least:

(a) the aFRR demand of every LFC area of each participating TSO being continuously reported to the IN-Platform by each participating TSO;

(b) the cross-zonal capacity (CZC) for concerned borders being continuously reported to the IN-Platform;

(c) the operational security constraints provided by the participating TSOs or affected TSOs in accordance with Article 150 of the SOGL, where applicable.

According to the ENTSO-E Explanatory Document of 18 June 2018 to All TSOs’ proposal for the implementation framework for a European platform for the imbalance netting process in accordance with Article 22 of Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing cross-zonal capacity for the purposes of imbalance netting is initially defined as follows (7, 8):

1. the cross-zonal capacity between bidding zones is calculated in accordance with Article 37 of the EBGL;

2. cross-zonal capacity within bidding zones are considered infinite or equal to the respective technical limitation;

3. cross-zonal capacity between bidding zones within a LFC area cannot be considered by the AOF and are by this considered as infinite in the activation optimisation function (AOF);

4. if a technical profile on the sum of several borders is defined in the intraday market, such limits will also be taken into account in the AOF.

Such technical profiles are defined (at least) on the borders out of Poland; from NO2 and NO5 into NO1; and from NO2 and SE3 into DK1.

On 24 June 2020 ACER adopted the Decision No 13/2020 on Implementation framework for the European platform for the imbalance netting process.

 

Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing   Article 22 European platform for imbalance netting process 1.   By six months after entry into force of this Regulation, all TSOs shall develop a proposal for the implementation framework for a European platform for the imbalance netting process. 2.   The European platform for the imbalance netting process, operated by TSOs or by means of an entity the TSOs would create themselves, shall be based on common governance principles and business processes and shall consist of at least the imbalance netting process function and the TSO-TSO settlement function. The European platform shall apply a multilateral TSO-TSO model to perform the imbalance netting process. 3.   The proposal in paragraph 1 shall include at least: (a) the high level design of the European platform; (b) the roadmap and timelines for the implementation of the European platform; (c) the definition of functions required to operate the European platform; (d) the proposed rules concerning the governance and operation of the European platform, based on the principle of non-discrimination and ensuring equitable treatment of all member TSOs and that no TSO benefits from unjustified economic advantages through the participation in the functions of the European platform; (e) the proposed designation of the entity or entities that will perform the functions defined in the proposal. Where the TSOs propose to designate more than one entity, the proposal shall demonstrate and ensure: (i) a coherent allocation of the functions to the entities operating the European platform. The proposal shall take full account of the need to coordinate the different functions allocated to the entities operating the European platform; (ii) that the proposed setup of the European platform and allocation of functions ensures efficient and effective governance, operation and regulatory oversight of the European platform as well as supports the objectives of this Regulation; (iii) an effective coordination and decision making process to resolve any conflicting positions between entities operating the European platform; (f) the framework for harmonisation of the terms and conditions related to balancing set up pursuant to Article 18; (g) the detailed principles for sharing the common costs, including the detailed categorisation of common costs, in accordance with Article 23; (h) the description of the algorithm for the operation of imbalance netting process function in accordance with Article 58.   4.   By six months after the approval of the proposal for the implementation framework for a European platform for the imbalance netting process, all TSOs shall designate the proposed entity or entities entrusted with operating the European platform pursuant to paragraph 3(e). 5.   By one year after the approval of the proposal for the implementation framework for a European platform for the imbalance netting process, all TSOs performing the automatic frequency restoration process pursuant to Part IV of Regulation (EU) 2017/1485 shall implement and make operational the European platform for the imbalance netting process. They shall use the European platform to perform the imbalance netting process, at least for the Continental Europe synchronous area.       Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing, Article 30(1) and (3)   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.   ...   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 Commission 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.

 

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