What are Balancing Services?
Why do we need Balancing Services
In order to work properly, a power grid has to maintain a certain frequency – either 50 or 60 Hz. For a more detailed overview, please refer to our knowledge article on grid frequency. How much the frequency deviates from the needed value depends on the correlation of power feed-in and consumption. If too much power is produced (or not enough consumed), the frequency rises. If not enough power is produced (or too many consumers need too much power), the frequency drops. Beyond a certain threshold (+/- 0.2 Hz), a black out is eminent. To avoid such scenario, system operators (in Europe transmission grid operators (TSO)) deploy balancing energy. This balancing energy is a power consuming or producing capacity that is added to or taken off the grid in case the frequency steers too far away from the stable level.
It is rather complicated to talk in general terms about balancing service markets on a global scale, since it is realized in many different ways depending on the system operator’s approach or the design of the electricity market. Some countries such as the U.S. operate electricity markets with a nodal pricing structure – and partly vertically integrated utilities Other countries such as Germany have liberalized markets with zonal pricing approach. Of course, the general concept of operating an electricity market also impacts the markets for balancing services. However, physical product specification such as activation speed or duration are very often comparable. For the sake of explaining the general concept, we decided to focus on the system outlined by the ENTSO-E (the European Network of Transmission System Operators of TSO in Europe).
Different Balancing Services in the ENTSO-E
In the ENTSO-E area, balancing energy is divided into three to four different main products, called Frequency Containment Reserve (FCR) recently R1, or primary control reserve, Automatic Frequency Restoration Reserve (aFRR, R2, or secondary control reserve), Manual Frequency Restoration Reserve (mFRR, R3, or tertiary control reserve) and Replacement Reserve (RR).
FCR instantaneously balances out frequency deviations. Assets that provide FCR need to fully react within 30 seconds to the steering signals. In this case, it is not the TSO’s signal that activates this product, but it correlates directly to the grid frequency. Assets providing FCR directly react to the grid frequency, which is measured by the provider, and steer their production/consumption proportionally to the deviation in order to balance the grid.
AFRR has a slower reaction time. In the system operations guideline (So GL) of the ENTSO-E, the following time frames are defined for the full activation time (FAT). The guideline is not in full effect, but is a planned roadmap for harmonizing the ENTSO-E markets. All PICASSO (see the explanation below) participants need to activate the aFRR within five minutes. MFRR should have an FAT of 12.5 minutes, while RR is subject to the TSO’s individual regulation.
Balancing services markets are designed differently within each country of the ENTSO-E area. While some countries such as Germany tender all required balancing capacity products in daily auctions, other countries have been relying on obligations and secondary markets for some products. However, the path is clear, more and more European countries joining common markets to share balancing capacity and committing to new platforms for a cross-border exchange of balancing energy. Furthermore, the balancing service market becomes more and more liberalized and open for new providers such as aggregators. For instance, Belgium will fully join the FCR Cooperation from July 2020 onwards. That means that ELIA (Belgium TSO) procures its complete FCR demand together with several European TSOs and not any longer via local auctions as it is partly done now. The PICASSO project, which is about implementing a platform to exchange aFFR balancing energy between European TSOs is planned to go live in 2022. Moreover, Italy has created a pilot scheme (UVAM) which allows smaller units to be aggregated and their flexibility can be activated by TERNA (TSO in Italy) for balancing purposes.
The foundation for the harmonization was created through various European regulations and directives from the Clean Energy package for all Europeans and the electricity balancing guideline. These European laws were established and implemented in the recent years. However, the implementation road map by the TSOs, regulation authorities, market participants and other relevant stakeholder will take until the middle of this decade. The legislations provided a convenient starting point to share balancing resources among European TSOs, harmonize market design and initiate the opening of markets for new players. All these are important steps to a cost-efficient power system, which is capable of integrating a high share of renewables in Europe. However, harmonization, market opening and creation of a level playing field between different market participants within different countries is a very challenging task including various unsolved questions.
- ‘balancing market’ means the entirety of institutional, commercial and operational arrangements that establish market-based management of balancing;
- ‘balancing services’ means balancing energy or balancing capacity, or both;
- ‘balancing energy’ means energy used by TSOs to perform balancing and provided by a balancing service provider;
- ‘balancing capacity’ means a volume of reserve capacity that a balancing service provider has agreed to hold and in respect to which the balancing service provider has agreed to submit bids for a corresponding volume of balancing energy to the TSO for the duration of the contract;