Role of the Electricity Balancing Network Code in the European Union Internal Electricity Market

 


 

 

The importance of the Electricity Balancing Network Code ("NC EB" or "Code") has been specifically underlined by the European Agency for the Cooperation of Energy Regulators (ACER), which in its Framework Guidelines stated the Network Code on Electricity Balancing "shall take precedence over relevant national frameworks (legislation, regulation, codes, standards, etc.) for cross border and market integration issues and national frameworks shall be adapted to the extent necessary, to ensure proper implementation at the national level."

 

The NC EB is applicable to all European:

 

Transmission System Operators (TSOs),

 

Distribution System Operators (DSOs)

 

Balance Responsible Parties (BRPs),

 

Balancing Service Providers (BSPs).

 

The significance of the pan-European Network Code for the electricity balancing has its origin in the fact that even after careful planning, producers, suppliers and traders may often find themselves out of balance and exposed to TSOs balancing and settlement regime.

 

The Network Code on Electricity Balancing is intended to give full shape to the Third Energy Package, and, more specifically, to ensure:


a) ambitious legal deadlines for the integration of balancing markets;


b) a clear time separation between intraday trading and balancing by Transmission System Operators; and


c) a standardisation of balancing products across Europe (Joint ACER-CEER response to European Commission's Consultation on a new Energy Market Design, 07 October 2015, p. 11, 12).

The Network Code on Electricity Balancing also provides a set of rules for balancing energy pricing and imbalance pricing. These are considered prerequisites to full market integration. 

 

It is noteworthy, Electricity Balancing Network Code disposes of its own conflict of norms' autonomous system as the Code recitals mandate to interprete the provisions thereof "in light of the overarching objective of maintaining the Operational Security of the transmission systems".

 

The structure of the draft Network Code Electricity Balancing is shaped by the three major parts:

 

(1) imbalance settlement,

 

(2) procurement of balancing services, and

 

(3) reservation and use of cross zonal capacity for balancing.

 

Balancing Energy

 

Balancing energy is defined by the TSOs' need to ensure that they will always be able to activate a sufficient amount of energy to balance the deviations between supply and demand in real-time.

 

Balancing energy is provided by the Balancing Service Providers (BSPs) that are able to meet the necessary technical requirements to deliver this service.

 

The balancing energy in real-time can thus be provided by the balancing resources, which were secured in advance as balancing reserves, or by other balancing resources that can offer balancing energy based on their availability in real-time.

 

Balancing Reserves

 

As TSOs are faced with the risk that they will not have enough offers for balancing energy from BSPs in real-time, they hedge this uncertainty by securing in advance a sufficient amount of power capacity available in their Load-Frequency Control (LFC) Area.

 

Hence, balancing reserve constitutes an option which gives the TSOs the possibility to activate the certain amount of balancing energy within a certain timeframe.

 

It is typically defined as the available generation or demand capacity which can be activated either automatically or manually to balance the system in real-time.

 

The TSOs usually check and/or conclude contracts to guarantee they have access to these balancing reserves ahead of real-time.

 

Imbalance Responsibility

 

In a liberalised market, the market players have an implicit responsibility to balance the system through the balance responsibility of market participants, the so called "Balance Responsible Parties" (BRPs).

 

In this respect, the BRPs are financially responsible for keeping their own position (sum of their injections, withdrawals and trades) balanced over a given timeframe – the imbalance settlement period. The remaining short and long energy positions in real-time are described as the BRPs' negative and positive imbalances respectively.

 

 

The identification of Settlement Processes Required in a European Balancing Market

 

 

The following settlement processes are required in a European Balancing Market:

 

1. TSO to Balance Service Providers (BSP):

 

- Pricing method for balancing energy products,

 

- Settlement of the local activated balancing energy,

 

- Settlement of the contracted reserves;

 

2. Settlement between TSOs (Common Merit Order/balancing function):

 

- Settlement of intended exchange of Load-Frequency Control Area imbalance due to activation on Common Merit Order List,

 

- Settlement of intentionally exchanged energy due to imbalance netting,

 

- Settlement of the unintentional deviations.

 

3. TSO to BRP.

 

 

Imbalance Settlement

 

Imbalance settlement represents a core element of balancing markets. 

 

Depending on the state of the system, an imbalance charge is imposed per imbalance settlement period on the BRPs that are not in balance.

 

It typically aims at recovering the costs of balancing the system and may include incentives for the market to reduce imbalances – e.g. with references to the wholesale market design – while transferring the financial risk of Imbalances to BRPs.

It should be noted that all energy settlements involve:

 

- energy volumes (kWh, MWh)

 

- per specific time units (this would be the period of time used for calculating the volume of balancing energy to be settled. For example, in case of TSO-BSP energy settlements and in the case of imbalance settlement, this period of time is the imbalance settlement period),

 

- in a specific direction (positive for [relative] injections, negative for [relative] withdrawals) due to a specific process subject to settlement described in this NC (e.g. imbalance netting, FRR process...),

 

- against a specific price, (local currency per MWh, e.g. €/MWh),

 

- to be settled between a TSO and a specific counterpart. (Central Counterparty, BRP, BSP, another TSO).

 

 

Imbalance Calculation

 

 

Imbalance for each BRP is calculated from three volumes (notified position, allocated value, adjusted volume).

 

The sum of the trades of a BRP (buy and sell) to others should match the net energy infeed/withdrawal over the connections for which the BRP carries responsibility. In order to assess this, the following volumes are therefore defined:

 

- A notified position (scheduled position) reflecting the final net volume of commercial transactions on all timescales on organised markets or between BRP's.

 

- An allocated value (usually based on metered values or profiled values), reflecting the net volume of physical generation and consumption over the connections for which the BRP is responsible for the imbalances.

 

- An adjusted volume reflecting the activation of balancing energy bids from the associated with this BRP, at least at balancing energy bid level.

 

All TSO's are prescribed by the Code to establish a procedure to determine each of these three volumes. 

 

 

Imbalance Pricing

 

 

Principles on pricing of the imbalances are relevant for the settlements between the TSO and the BRPs.

 

Imbalances will be settled in each direction that is shortage or surplus.

 

The imbalance price will be related to what the TSO or TSOs have done or avoided to restore system balance or frequency, or when relevant what TSO has done to replace reserves.

 

 

 

Balance Responsible Party Imbalance

TSO Activating

short (-)

neutral (0)

long (+)

none

n.a.

n.a

n.a.

upward

aggravating

n.a

supporting

downward

supporting

n.a

aggravating

upward

+ downward

n.a.

n.a

n.a.

(The source of data: SUPPORTING DOCUMENT FOR THE NETWORK CODE ON ELECTRICITY BALANCING of 3 JUNE 2013 V1.1 A CONSULTATION DOCUMENT TO SUPPORT THE ASSESSMENT OF THE DRAFT NETWORK CODE ON ELECTRICITY BALANCING)

 

BRP aggravating imbalances should not be priced less (for shortage) respectively more (for surplus) than the weighted average price for Frequency Restoration Reserve (FRR) and Replacement Reserve (RR) in the relevant area, in order to reflect the local imbalance situation.

 

For marginal pricing of balancing energy the average price will equal the marginal price thus giving the appropriate incentives to the BSP to provide the requested volumes.

 

By including the value of the avoided activation in these formulae, this value will appear as the imbalance price in TSO has avoided all activation.

 

In case of both upward and downward activation within the same imbalance settlement period, at least one of the imbalances will be priced according to the aggravating principle.

 

These are high level principles; the price in the other, unmentioned directions (not aggravating imbalances) is not prescribed.

 

Also in case of aggravating imbalance it is not prohibited to exceed the price condition. 

 

 

Financial Neutrality of the TSO with regard to the Balancing Energy Settlements

 


The settled principle is that TSOs should be financially neutral with regard to the Balancing Energy settlements.

 

Financial neutrality in that regard means that TSO is not allowed to gain profit from any balancing energy settlement process.

 

 

Transition Period

 

Network Code on Electricity Balancing (NC EB) will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union after concluding standard procedures for network codes adoption.

As follows from the form of the Regulation, NC EB will be binding in its entirety and directly applicable in all EU Member States. 

The entry into force of the NC EB will influence on the entire EU Internal Electricity Market arrangements, particularly on Balancing Market participants, Balancing Service Providers (BSPs)Balance Responsible Parties (BRPs) and many others.

For rules on the procurement of Balancing Capacity within the Responsibility Area and procurement of Balancing Capacity within the Coordinated Balancing Area (CoBa) as well as Chapter 5 of the NC EB governing balancing settlemets (Imbalance Settlement including), the transition period of two years has been envisioned.

 

During the transition period the requirements of the Network Code on Electricity Balancing will not apply to agreements related to electricity Balancing between transmission system operators (TSOs) or between a TSO and a concerned grid user existing at the date of the entry into force of the NC EB.

NC EB, after the said transition period, will, however, be applicable even to agreements between a TSO and a concerned grid user existing at the date of the NC EB entry into force as well as those concluded during the transition period.

 

Electricity balancing markets' general harmonisation prospects

 

In spite of balancing market's harmonisation effort, opinions are sometimes voiced, at least a large share of the balancing capacity markets remain local. ENTSO-E Document "Terms of Reference for a study assessing aFRR products", v1, WGAS subgroup 5, of 9 December 2014 reasons the said view with the following arguments:

 

- the Network Code on Electricity Balancing imposes no obligation for exchange of balancing capacity,

 

- the exchange of an automatic Frequency Restoration Reserve (aFRR) capacity is constrained by available cross-zonal commercial capacity, and

 

- at least 50% of the aFRR capacity must be procured within the local Transmission System Operator (TSO) Load Frequency (LFC) Block.

The document at issue adds, moreover, on account of the above circumstances the exchange of balancing capacity will not profit from harmonization performed for the cross-border exchange of balancing energy.

 

 

 



Last Updated on Friday, 29 September 2017 20:10
 

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