Category: Energy Market

Published: 30 January 2013

Last Updated: 14 June 2023

 

The importance of the Electricity Balancing Network Code (Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing - EBGL or NC EB) 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 main purpose of EBGL is the integration of balancing markets to enhance the efficiency of the European balancing processes.

20 December 2018 ENTSO-E - major milestone reached towards the integration of European electricity balancing markets

 

According to Article 1(1) of the NC EB, the Code lays down a detailed guideline on electricity balancing including the establishment of: 

1. common principles for the procurement and the settlement of:

• frequency containment reserves (FCR),
• frequency restoration reserves (FRR),
• replacement reserves (RR), and

2. a common methodology for the activation of FRR and RR. 

The NC EB is applicable to: 

• Transmission System Operators (TSOs),
• Distribution System Operators (DSOs),  
• Balance Responsible Parties (BRPs),
• Balancing Service Providers (BSPs).

The NC EB establishes an EU-wide set of technical, operational and market rules to govern the functioning of electricity balancing markets. 

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.

 

 

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 underlines (p. 49) that the core element of the NC EB is the efficient exchange of balancing services, which will provide the legal framework for integrating national balancing markets. A prerequisite for a regional approach to balancing reserves is the possibility to exchange balancing energy across borders.

NC EB closely follows the line taken by ACER in the Framework Guidelines under all aspects of balancing, however, as is observed by the 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. 12), one notable exception concerns the geographical approach of NC EB - whereby ACER proposed a regional approach for exchanging balancing energy as a first step, the proposal endorsed opts for a European-wide approach for exchanging balancing energy.

The integration of balancing capacity markets is not required by the NC EB, instead, the focus is on the integration of balancing energy markets for an automatic FRR (in accordance with Article 21 of the NC EB) through the exchange of standard balancing energy products.

The integration of the balancing energy markets is proposed in line with a multilateral TSO-TSO model.

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

• ambitious legal deadlines for the integration of balancing markets;
• a clear time separation between intraday trading and balancing by Transmission System Operators; and
• 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. NC EB also requires the development of harmonised methodologies for the allocation of cross-zonal transmission capacity for balancing purposes.

Such rules will increase the liquidity of short-term markets by allowing for more cross-border trade and for a more efficient use of the existing grid for the purposes of balancing energy (Recital 5).

 

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.

To accelerate the integration of balancing markets, several initiatives have been launched in Europe, including:

• the frequency containment reserves (FCR) cooperation project for procuring and exchanging balancing capacity for FCRs;
• the regional International Grid Control Cooperation (IGCC) project operating the imbalance netting process;
• the Common Baltic Balancing Market platform for manually-activated frequency restoration reserves (mFRRs) exchanges;
• the Nordic Balancing Model (NBM), a Nordic programme aimed at implementing a common balancing market, and
• the Trans European Replacement Reserves Exchange (TERRE) platform for exchanging balancing energy from replacement reserves (RRs)

These projects are intended to stimulate the exchanges of balancing services in Europe. They will need to adapt to the EBGL requirements, and to become part of the reference projects to allow for a greater efficiency and better synergies across Europe.

 

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.

Links       NC EB ENTSO-E base   ACER's website on electricity balancing   Cross Border Electricity Balancing Pilot Projects   Coordinated Balancing Area (CoBa)

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.

  

 

 Source: Supporting Document for the Network Code on Electricity Balancing of 3 June 2013

 

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. n 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.

  

Entry into force

 

The date of entry into force of the Network Code on Electricity Balancing is 18 December 2017 (with the exception of Articles 14, 16, 17, 28, 32, 34 to 36, 44 to 49, and 54 to 57, for which the Regulation shall apply from one year after entry into force). As the EU Regulation, NC EB is binding in its entirety and directly applicable in all EU Member States.

 

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.

 

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