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 GL), 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 weekly auctions with one weekly symmetric product. The auction takes place on Tuesday afternoon and applies for the next delivery week. 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 have 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.

Organizational structure

The decision-making body of the FCR Cooperation is its Steering Committee, chaired by Markus Riegler (Markus.Riegler@apg.at). The Steering Committee steers the working groups and manage the interface with NRAs closely. Currently, there are two working groups: the Market Expert Group addresses market-related topics and is represented by the Convener Milos Djordjevic (Milos.Djordjevic@swissgrid.ch). Margelou Stavroula (stavroula.margelou@swissgrid.ch)[mailto:stavroula.margelou@swissgrid.ch] leads the Technical Expert Group, focusing on technical topics.

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.

EB GL Article 33(1) 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 EB GL Article 10, 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 EB GL Article 34(1) 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

Abbreviations

  • BSP ==> Balancing Service Provider

  • CBMP ==> Cross-Border Marginal Price

  • CCS ==> Central Clearing System

  • EB GL ==> Guideline on electricity balancing

  • GCT ==> Gate Closure Time

  • GOT ==> Gate Opening Time

  • LMP ==> Local Marginal Price

  • LMPe ==> Local Marginal Price of exporting country

  • LMPi ==> Local Marginal Price of importing country

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: Daily.

  • 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 bid resolution is 1 MW as well.

  • Core shares and export limits exist as limitations in the FCR Cooperation’s 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 LFC block. For each country, an import and export limit are defined which give an indication on how much FCR can maximally be imported from or exported to other LFC blocks of the cooperation.

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All TSOs procure their required FCR demand in separate, market-based tenders on working days. GOT of the tenders is in D-14. After GCT of regional tenders (Mondays to Fridays at 15:00 CET), the bids are sent to a Central Clearing System (CCS). The CCS then calculates the optimal combination of bids to be awarded under consideration of local core shares and the maximum exchangeable volumes (import and export limits of a country) with the goal to reduce total procurement cost of the cooperation. The results are then published every week day latest at 16:00 CET, one hour after GCT.

If no import and export limits are reached, one common marginal price (CBMP) will be determined equalling the most expensive awarded bid in the overall cooperation. Every BSP offering FCR in the cooperation will therefore receive the same settlement price per MW - local marginal prices (LMP) of each LFC block are therefore equal to the CBMP.

Exceptions from having one CBMP may occur when import or export limits of one or more countries of the cooperation are reached. In this case, an LMP will be determined based on the local bids within a region.

2.1 Case of reaching an export limit

If the export limit of a country is reached, then the local marginal price of this country is the price of the most expensive awarded bid of this country (LMPe). This LMPe is always less than or equal to the CBMP. In the following illustration, Switzerland not only covers its core share but also receives high shares of cost-efficient bids within its own borders. In this example, 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 as the CBMP and equals the highest awarded Swiss bid.

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2.2 Case of reaching an import limit

In analogy to the case of reaching an export limit, an import limit can be reached. If this is the case, then the marginal price of this country is the maximum price of the accepted offers of this country (LMPi). This LMPi is always greater than or equal to the CBMP.

In the example below, the optimisation algorithm finds an optimal solution once Austria imports volumes of FCR up to its import limit is reached. It therefore needs to procure the remainder from local bids whose price might lie above the CBMP. In many cases, there are even non-awarded cheaper bids from other LFC blocks. The LMP of Austria is therefore determined to equal the highest awarded Austrian bid.

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2.3 Case of several optimal solutions

If there is a set of optimal solutions, the solution maximising the producer surplus (i.e. the area between the marginal price and individual bid prices) is selected.

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

2.4 Divisible and indivisible bids

The optimisation algorithm allows the submission of two different types of bids: divisible and indivisible bids. Whereas indivisible bids can only be fully accepted or not accepted at all, any quantity between zero and the offered quantity of a divisible bid can be accepted under the condition that the accepted quantity is a multiple of 1 MW.

These two types of bids are treated differently by the algorithm. Indivisible bids can be “paradoxically rejected” meaning that a bid is rejected although the offered price was lower than the Local Marginal Price of the LFC block where it was submitted. Indivisible bids can be rejected if their awarding would not reduce the overall procurement cost and would lead to paradoxically rejected bids. This must not happen with divisible bids.

In a nutshell, indivisible bids are only selected if they improve the overall result of the optimisation outcome.

3. Case of over procurement because of an indivisible bid

The occurrence of indivisible bids can also lead to an over procurement by the cooperation. If it minimises total procurement cost pursuant to EB GL Article 58(3) and 58(4), the total awarded quantity in a country can – in exceptional cases – be higher than its demand plus export limit, whereby the quantity exceeding the demand plus export limit cannot be used for the coverage of the total volume of the cooperation. In this case, the sum of all awarded volumes over all countries is larger than the total demand (over procurement).

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However, the acceptance of an indivisible bid must never prevent the acceptance of a cheaper divisible bid and therefore prevent paradoxically rejected divisible bids.

As an example, if there are only two bids offered in country A (with a core share of 20 MW), a low-price divisible offer of 10 MW and an indivisible high-price offer of 20 MW, both bids have to be fully accepted in order to satisfy the core share (and prevent 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!

4 Case of under procurement

4.1 Shortfall of total FCR demand

If the total FCR demand of the cooperation cannot be covered by the overall volume of bids, all local bids stay with the country where they are submitted (connecting area). If local surplus exists, it is pooled and distributed among the cooperation, proportionally to their demand. However, export limits and core shares must be still respected. Remaining missing volumes have to be procured locally.

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4.2 Insufficient coverage of core share of a country

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

Contacts

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

Press Releases and Updates

  • 29 October 2019 Updating the website with adding the section ‘Overview of the procurement principles of the FCR cooperation’ is added to the website and changing the TEG convener.

  • 19 June 2019 Go-live of daily auctions: First gate opening time today at 11 am for delivery day 1st July 2019

  • 09 January 2019 Stakeholder workshop on harmonisation and market implementations February 19, 2019 at ENTSO-E in Brusssels

  • 09 January 2019 NRA approval for amended TSOs’ proposals was confirmed to all TSOs of the FCR Cooperation

  • 18 October 2018 Amended TSOs’ proposal for the establishment of common and harmonized rules and processes for the exchange and procurement of Balancing Capacity for Frequency Containment Reserves (FCR)

  • 18 October 2018 Amended TSOs’ Proposal for the exemption from the obligation to allow balancing service providers to transfer their obligations to provide balancing capacity

  • 14 June 2018 Updated Consultation report as two inconsistencies were detected and are corrected. Outlined corrections:

    • GOT D-14 (replacing statement of GOT D-5 )

    • Implementation D-1 daily auctions as of 01-07-2020 (replacing 01-12-2020)

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

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