Frequency Containment Reserves (FCR)

In accordance with the objectives of the Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing (EB Regulation), a common market for procurement and exchange of FCR (FCR Cooperation) aims to integrate balancing markets to foster effective competition, non-discrimination, transparency, new entrants and increase liquidity while preventing undue distortions. These objectives must be met in consideration of secure grid operation and security of supply.

This regional project currently involves ten Transmission System Operators (TSOs) from seven countries. These are the TSOs from Austria (APG), Belgium (Elia), Switzerland (Swissgrid), Germany (50Hertz, Amprion, TenneT DE, TransnetBW), Western Denmark (Energinet), France (RTE) and the Netherlands (TenneT NL).

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Basic Principal

The Austrian, Belgian, Dutch, French, German and Swiss TSOs currently procure their FCR in a common market. Extension towards Western Denmark is foreseen and welcomed by all involved TSOs and National Regulatory Authorities (NRAs).

The FCR Cooperation works currently with daily auctions with four-hour symmetric products. The auction takes place every day and applies for the next delivery day. The FCR Cooperation is organised with a TSO-TSO-model, where the FCR is procured through a common merit order list where all TSOs pool the offers they received. The interaction with Balancing Service Providers (BSPs) and the contracts between the TSOs and BSPs are handled on a national basis along with the responsibility of delivery.

Further development of the market design will facilitate the access for smaller market players, improve the investment signals and increase socio-economic benefits. The process of market design evolution is based on a close cooperation between all the TSOs, NRAs and stakeholders of the involved countries.

Organisational structure

The decision-making body of the FCR Cooperation is the Steering Committee, chaired by Jan van Putten. The Steering Committee steers the working groups and manage the interface with NRAs closely. Currently there are two working groups: Market Expert Group address market related topics and is represented by the Convener Milos Djordjevic. Tim Riedler leads the Technical Expert Group, focusing on technical topics. They can be contacted via the FCR mailbox (see section Contacts below).

Historical evolution & Outlook

With the ongoing changes in the technology mix (e.g. increased share of renewables, demand side response and storage technologies) TSOs and NRAs decided to assess the current status of the FCR Cooperation and study the possible market design evolutions. The FCR Cooperation project partners launched a public consultation in January 2017, seeking market participants’ views on detailed design options and proposed choices to be implemented. In addition, extension towards France was realised in mid-January 2017.

Resulting from the public consultation, the consultation report was published in May 2017, including TSO analysis and subsequent TSO conclusions. Foreseen market design evolution with detailed information is provided in the document.

Article 33(1) of the EB Regulation provides that TSOs exchanging […] balancing capacity shall develop a proposal for the establishment of common and harmonised rules and processes for the exchange and procurement of balancing capacity. Since the TSOs of the FCR Procurement are exchanging FCR, they developed a Draft Proposal (together with FCR Draft Proposal - Article 34_1). In accordance with Article 10 of the EB Regulation, a public consultation on the Draft Proposals was undertaken beginning of 2018. On 26 April 2018, TSOs of the FCR Procurement have submitted their Proposal – Article 33_1 (together with Proposal – Article 34_1). TSOs have assessed views of stakeholders resulting from the consultation, and have prepared the consultation report including TSO analysis and subsequent conclusions.

Extension of the joint FCR procurement towards Western Denmark is currently foreseen and welcomed by all involved TSOs and NRAs.

On 26 April 2018, the FCR Cooperation’s TSOs submitted the abovementioned market proposals to NRAs and ACER.

End of September 2018, NRAs submitted a request to amend the TSOs’ proposal for the establishment of common and harmonised rules and processes for the exchange and procurement of balancing capacity for frequency containment reserves (FCR) regarding the move of the first implementation step from 26 November 2018 to 1 July 2019 (delivery day).

Simultaneously, NRAs submitted the request to amend the TSOs’ proposal for the exemption from the obligation to allow balancing service providers to transfer their obligations to provide balancing capacity in accordance with Article 34(1) Article 34(1) of the EB Regulation regarding the change of the date from 26 November 2018 to 1 July 2019 (delivery day). The exemption will be applicable from the date of submitting the NRA approval.

The main reason for NRAs’ request for amendments was that stakeholders’ feedback received in the official consultation pointed out the limitations to the lead-time available for balancing service providers strictly following the expected date of NRAs’ approval. Furthermore, this solution will also allow synchronising the implementation of daily auctions with the introduction of marginal pricing, thus reducing the number of implementation steps.

Consultations

TSOs appreciate the received feedback from stakeholders during the public consultation on market design in February 2018. The feedback was analysed and improved the quality of the updated proposals, prepared and submitted to NRAs (links above and below).

Overview of the procurement principles of the FCR cooperation and implementation in the algorithm

Abbreviations

  • BSP ==> Balancing Service Provider

  • CBMP ==> Cross-Border Marginal Price

  • CCS ==> Central Clearing System

  • EB Reg. ==> Guideline on electricity balancing

  • GCT ==> Gate Closure Time

  • GOT ==> Gate Opening Time

  • FCR ==> Frequency Containment Reserve

  • LFC block ==> Load-frequency Control Block

  • LMP ==> Local Marginal Price

  • LMPe ==> Local Marginal Price of exporting country

  • LMPi ==> Local Marginal Price of importing country

  • SO Reg. ==> Guideline on electricity transmission system operation

  • TSO ==> Transmission System Operator

1. Product information on FCR

The Austrian, Belgian, Dutch, French, German and Swiss TSOs currently procure their FCR in a common market. The product characteristics in the cooperation are defined as follows:

  • Symmetric product (meaning that upward and downward FCR are procured together)

  • Duration of product delivery: usually 4 hours, subject to daylight saving time shift.

  • TSOs allow divisible and indivisible bids. Indivisible bids can have a maximum bid size of 25 MW in all the participating countries.

  • Minimum bid size is 1 MW and resolution is 1 MW as well.

  • In accordance with SO Reg. (Annex VI “Limits and requirements for the exchange of FCR”): Core shares and maximum transfer capacities (export limits) exist as limitations in the FCR market.

2. General optimisation principle

For each country a core share is defined which represents the minimum volume of FCR which has to be procured from technical units of Balancing Service Providers (BSPs) within the borders of the country. For each country, an export limit is defined which indicates how much FCR can maximally be exported to other countries of the cooperation.

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All TSOs procure their required FCR demand in market-based tenders every day. Gate Opening Time (GOT) of the tenders is daily in D-14 at 11:00 CET. After Gate Closure Time (GCT) of those tenders (daily in D-1 at 08:00 CET), the bids of all TSOs are sent to the common optimisation algorithm. The optimisation algorithm calculates the optimal combination of FCR bids to be awarded under consideration of core shares and the maximum exchangeable FCR volumes (export limits of a country) with the goal to reduce total procurement cost of the cooperation. Results are then published latest at 08:30 CET, half an hour after GCT.

First goal of optimisation is to satisfy the required demand of all participating countries while respecting the mentioned limits. This is true even in some special cases which lead to over-procurement due to indivisible bids.

If no export limits or core share constraint are hit, one cross-border marginal price (CBMP) will be determined equalling the most expensive awarded bid in the overall cooperation. Every BSP in the cooperation will therefore receive the same settlement price per MW and per duration of product delivery (usually 4 hours) for their awarded bids. Local marginal prices (LMP) of each country are in this situation equal to the CBMP (Cross Border Marginal Price).

Exceptions from having one CBMP may occur once export limits or core share constraint of one or more countries of the cooperation are hit. In this case, an LMP will be determined based on the local awarded bids within a country.

2.1 Case of hitting a limit constraint

It is important to understand that an export limit or core share constraint is hit whenever it influences the solution and not only when the quantity awarded in a country is exactly equal to the respective limit quantity of that country.

Case of hitting a core share constraint

If the core share constraint is hit, then the marginal price of this country is the price of the highest-priced awarded bid of this country (LMPi). This LMPi is always greater than or equal to the CBMP.

In the example below, the optimal solution without any constraints would have been to award the highest-priced bid from the Netherlands. The optimal solution with the core share constraint in Austria is to award the Austrian high-priced bids and the LMPi of Austria is therefore determined by the awarded Austrian bid with highest price. In such a situation, there are non-awarded bids from other countries with an offered price lower than the LMPi of Austria.

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There may also be situation were the awarded capacity within a country is above the core share constraint of that country and where the constraint is still considered as hit.

Let’s consider an example of the core share constraint in the Netherlands of 34 MW where there are 33 MW of low-priced bids in the Netherlands and an additional high-priced indivisible bid of 25 MW. The bid with high price would not be awarded if there was not a core share constraint. But with the core share constraint, the high-priced indivisible bid must be awarded and the total awarded quantity in the Netherlands would be 58 MW. The total awarded quantity would be far (24 MW) above the core share but still the core share constraint is hit and influences the solution. The LMPi in the Netherlands is set by the high-priced indivisible bid and is higher than the CBMP.

Case of hitting an export limit

If the export limit of a country is hit, then the LMP of this country is the price of the highest-priced awarded bid of this country (LMPe). This LMPe is always lower than or equal to the CBMP.

In the following illustration, Switzerland receives high FCR volume of low-priced bids, and therefore a high FCR volume is awarded in Switzerland. The FCR volume of awarded bids is higher than local demand. In the example below, one Swiss bid is not awarded due to the before-mentioned limitation, even though it is still offered at a lower price than the CBMP. The LMPe is consequently set at a lower level than the CBMP and equals the highest-priced awarded Swiss bid.

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The same logic as the core share constraint applies for export limit of exporting countries with low LMP while the export limit is not reached (but is hit). The reason for not reaching the exact limit values but still hitting the respective limits is due to the involvement of indivisible bids.

2.2 Case of several optimal solutions

If there is a set of equally optimal solutions to cover the demand of a country, the bids belonging to that country (own bids) have an awarding priority to the bids from other countries in order to avoid excessive cross-border exchange under consideration of previous requirements.

If then there is still more than one optimal solution, the bids which have been submitted first are awarded.

2.3 Divisible and indivisible bids

The optimisation algorithm allows the declaration of two different types of bids: Divisible and indivisible bids. Indivisible bids can only be fully awarded or not awarded at all. For divisible bids, any quantity between zero and the offered quantity of a divisible bid can be awarded. The resolution of the awarded quantity is always 1 MW.

These two types of bids are treated differently by the algorithm in some special cases. Indivisible bids can be “paradoxically rejected” meaning that an indivisible bid is rejected although the offered price is lower than the LMP of the country where it is submitted.

This must not happen with divisible bids – divisible bids cannot be “paradoxically rejected”. As an example, if there are only two bids offered in country A (with a core share of 20 MW), a low-price divisible bid of 10 MW and an indivisible high-price bid of 20 MW, both bids have to be fully awarded in order to satisfy the core share (and avoid paradoxically rejected divisible bids).

Divisible bids are never paradoxically rejected i.e. divisible bids for which the offered price is lower than the LMP are always awarded (see figure below). The next bid after the indivisible bid cannot be rejected if it is divisible and has a lower price.

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To sum up:

Indivisible bids are only awarded if they improve the overall result of the optimisation outcome.

Indivisible bids can be rejected if their awarding would not reduce the overall procurement cost and would lead to paradoxically rejected divisible bids. This rule also holds for bid sizes of 1 MW which are declared as indivisible by the BSP, even though such a bid complies with the minimum bid size and cannot be further divided.

Recommendation:
Do not declare bids with a size of 1 MW as indivisible!

2.4 Case of over procurement because of an indivisible bid

The occurrence of indivisible bids can also lead to an over procurement of the cooperation. If it minimises total procurement cost (pursuant to Article 58(3) and (4) EB Reg.) the total awarded quantity in a country can – in exceptional cases – be higher than the sum of its demand and export limit. However, the quantity exceeding the sum of its demand and export limit cannot be used for the coverage of the total demand of the cooperation. In this case, the sum of all awarded volumes over all countries is larger than the total demand (over procurement). This is illustrated in the figure below where the indivisible bid is awarded because this results in lower overall procurement costs.

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Special case of not hitting an export limit

An export limit may not be hit even if the quantity of awarded bids of a country is equal or above the sum of its demand and export limit (due to the acceptance of an indivisible bid). The export limit is not active in a country where all of the offered capacity has been selected (even if the selected capacity is equal or above the sum of its demand and export limit) in case the same capacity would be awarded also in case there was no limit. The limit is not active if it does not influence the solution which would be calculated without the limits.

2.5 Case of under procurement

Insufficient coverage of core share of a country

If a core share of a country cannot be covered by the total FCR volume of own bids, the core share shall be covered as much as possible with own bids. The rest of core share (which cannot be fulfilled by the own bids) remains as the deficit of FCR of that country.

Remaining missing demands have to be procured locally and cannot be imported. For this local procedure, additional local bids are needed and this local procedure is out of scope of this document.

Shortfall of total FCR demand in the cooperation

If the total FCR demand of the cooperation cannot be covered by the total FCR volume of bids, all local bids are awarded to the country of the connecting TSO. If local surplus exists in some of the countries, it is pooled and distributed among the countries in deficit within the cooperation, proportionally to their demand. However, export limits and core shares must be still respected. Remaining missing demands have to be procured locally.

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Contacts

In case you are interested in the FCR Cooperation or have any questions, please contact FCR@entsoe.eu.

Press Releases and Updates

Below TSO Proposals published on April 26, 2018 are not impacted by this.

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