What is the Electricity Balancing Guideline (EBGL)?
A Bit of History
Back in the nineties, the European Union and its member states embarked on a mission to widen the internal market to the field of energy. This came to be known as the internal energy market, which strives for pan-European competitive and open energy markets, leading to lower costs for end-consumers, and increased security of supply. Later, the dimension of sustainable energy production and energy efficiency became important focus points of the internal market. Thanks to the ‘Energy Union Strategy’ in 2015 and the subsequent ‘Clean Energy for all Europeans legislative package’ in 2019, the creation of the internal energy market as it was initially designed seemed to be approaching its completion.
Work is far from finished though. Where today electricity is being traded cross border on the power exchanges, safeguarding the stability of the grid is still very much a national matter. The TSOs of the member states have developed specific products and mechanisms guarantee the balance between supply and demand. These mechanisms look quite different from country to country and are seldom shared cross-border. To ensure a more cost-competitive procurement of balancing power, the European Commission introduced the Electricity Balancing Guideline (EBGL) in 2017 to harmonize the balancing markets just like it had done earlier for the energy markets. As this is a long-term projectstill in its infancy, we try to give a comprehensive overview of what the EBGL entails.
Regulation (EU) 2017/2195, as the Electricity Balancing Guideline was called originally, laid down binding rules for the exchange of balancing services to stabilize the electricity grid between the individual European member states in 2017.
The Balancing Guideline creates binding framework conditions for the following areas:
- Harmonizing the procurement of system services such as frequency retention reserves, frequency recovery reserves, and replacement reserves.
- Cross-border imbalance netting
- The role of TSOs, BRPs, and BSPs in this matter
Objective: European Harmonized Balancing Energy Markets
Today, Europe is still a patchwork of balancing products. These are grid supporting reserves that TSOs contract from market players to help maintain grid balance. These reserves, which are internationally known as FCR (for Frequency Control Reserve), aFRR (for automatic Frequency Restoration Reserve) and mFRR (for manual Frequency Restoration Reserve), have already been established under different names and acronyms in the European member states. Common abbreviations are R1, R2 and R3 in the Belgian market and PRL, SRL, and MRL or TRL in Germany.
Although these products often have a similar aim in the different member states, their implementation can differ substantially. How much balancing power will be auctioned, and on what time horizon? Who can participate - only conventional power plants or also aggregators and demand response units? Is a prequalification test needed before participation can start? How will the service be remunerated? How will the delivery of the service be monitored? The answers to these questions differed from country to country – until now.
With the Electricity Balancing Guideline, the European Commission now plans to align future balancing power products with the rough classification of FCR, aFRR and mFRR so that TSOs can procure them across borders. As defined in Article 3, "effective competition, non-discrimination and transparency" are the main objectives of the regulation. More efficiency, operational reliability and a thorough integration of the electricity markets with a uniform function of the European day-ahead, intraday and balancing energy markets are the aims. In addition, the EU attaches increased importance to the non-discriminatory and market-based fair inclusion of demand side management (DSM), referred to in the regulation as "load management".
Towards the Internal Electricity Market with the EB-GL
The Balancing Guideline brings us much closer to the final goal: the common, non-discriminatory, restriction-free, and harmonized electricity market between the member states of the European Union. On a regional level, strong collaboration between some neighboring countries has already led to a degree of harmonization. For example, in Western Europe, the German, Belgian, and Dutch market designs have many similarities. Their day-ahead and intraday markets are coupled, all have balancing energy markets, most of which work based on merit order clearing and activation. Accessing those markets is largely non-discriminatory and market conditions are transparent.
However, these conditions do not exist in all countries: In Poland, for example, the control energy market is still in an initial opening phase. Other countries, especially in Eastern Europe, have a largely state-controlled, vertically organized electricity system.
To bring the benefits of harmonized balancing markets to all member states, successful implementation of the Balancing Guideline is crucial. To that end, all TSOs and their national regulatory bodies must agree on common rules and protocols for data exchange. The TSOs, united on a European Level under the ENTSO-E (European Network of Transmission System Operators for Electricity) have done a lot of work already towards the implementation of the EBGL. Market parties who will eventually have to deliver reserve power within the harmonized framework are also involved and consulted in the process. In the end, transmission system operators, distribution system operators, electricity traders, electricity producers, and the consumers must speak a common language, a binding set of contracts and rules for the electricity market – kind of an "acquis communautaire" for the energy market.
Important Components of the Electricity Balancing Guideline
Harmonizing the European electricity markets will not be achieved only by executing the Balancing Guideline. The ENTSO-E and its members defined five key areas to realize the EBGL. We discuss each of them very briefly below.
PICASSO, MARI and TERRE
Behind the rather flowery names PICASSO, MARI and TERRE are the three platforms on which balancing energy and system services are to be auctioned, cleared, monitored, and remunerated within the Energy Union in the future. Some of these platforms have already taken their first steps in some member states. While PICASSO deals with pan-European trading for aFRR, MARI aims to do the same for mFRR. TERRE is meant to establish a trans-European exchange for Replacement Reserves (RR), a product that does not exist in all member states yet but can be loosely compared to mFRR. For example, RR does not exist in Germany nor Belgium and therefore these countries have not been involved much in the discussions around TERRE.
The FCR cooperation aims to establish a harmonized market for the fastest of all reserve power products: Frequency Containment Reserve (FCR), also known as primary reserve in many countries. Of all the implementation projects, this one is most advanced, with 9 TSOs from six European countries including Germany, Belgium, and the Netherlands already procuring FCR power from market participants on a common platform called “Regelleistung”. On this platform, Primary reserve power from several countries is already auctioned together; the increased competition has led to lower costs for the TSO. Regardless of this, there is still a lot of work to do in bringing the rules for monitoring the service, prequalification, and market access on one line.
IGCC: cross-border imbalance settlement
Today, grid operators manage the balance within their control zones. Often, the control zone covers a whole country like in the Netherlands and in Belgium. With IGCC, these countries can balance their power grids together. An example: A given day in the Benelux States before IGCC: The Belgian TSO notices a positive imbalance (an excess of power production). He activates his downward reserves. At the same time, the Dutch TSO notices a negative imbalance (a shortage of production). He activates his upward reserves. If the cross-border capacity allowed for it, they can net the imbalances to relief the imbalance situation partly or even completely. Therefore, the IGCC project aims to establish a cross-border imbalance netting platform.
The Balancing Guideline does not stand alone
The Balancing Guideline is not the online Guideline put in place in recent years to foster European wide collaboration in the energy market. For example, both the regulation on capacity allocation and congestion management (CACM) and the generation and load data provision methodology (GLDPM) are intended to establish a harmonized, universal system for data exchange of power generation and congestion management. For this purpose, all grid users throughout Europe, including of course the producers of electricity from renewable energy sources, were called upon to transmit system data if the system has an installed capacity of more than 10 MW.
A number of grid codes complete the different guidelines. The grid codes are an important component of EU Regulation 2017/2095 and regulate market and technology-relevant framework conditions in the electricity supply. The grid codes were laid down in EU Regulation 714/2009 and have been legally binding for all European market participants since 2016.
The eight different codes can be divided into three groups:
- Connection codes:Minimum technical requirements for the grid connection of consumers, generators, and balancing group managers
- Market codes:Guidelines for congestion management, capacity allocation, and balancing between balancing groups
- Operational codes:Detailed guidelines for transmission system operation in different network states (normal state, emergency, blackout, and recovery phase)
National Authorities, TSOs, the ENTSO-E and the Balancing Guideline
With the Balancing Guideline entering into force, design of the balancing energy markets is shifting from the national grid operators and regulators’ desks to the European associations such as the ENTSO-E and ACER. Discussions and implementation take a lot of time before a comprise can be found that fits all member states; the time horizons are deliberately wide. According to Article 5 of the EBGL, the European transmission system operators are now responsible for collectively developing proposals for methods and modalities of the pan-European control energy market. After a consultation with stakeholders in accordance with Article 10, the national regulatory authorities then only need to approve the proposals and the results of the consultations within the deadlines of two to six months.
Changing the control energy market system in the future will need a pan-European agreement of the national regulatory authorities. If, however, no agreement is reached within the deadlines, the superordinate EU energy agency ACER (Agency for the Cooperation of Energy Regulators) steps in as the superordinate European regulatory authority and determines the market design of the European member states.
Conclusion: The Integration of the European Electricity Systems Is Progressing
With the Electricity Balancing Guideline, the EU is establishing a binding set of rules for the procurement of balancing energy in the European Energy Union, which will transform the balancing energy market from a national to a pan-European matter. This should, if everything works according to plan, create more efficient procurement, more reliable reserve power provision, and eventually lower costs for end-consumers. It also prepares the European energy system for a future in which renewables form the backbone of our energy supply and consumers play a more active role. That can only be a good thing.