New auction design for frequency containment reserve since 1 July 2019 - first interim results

On 1 July, the auction design for frequency containment reserve (FCR) of the international FCR cooperation(1) was adapted by its transmission system operators (TSOs). The conversion essentially comprises three important innovations ([1] and [2]). For the providers of frequency containment reserve, the following two are of particular importance:

  • Daily auctions on working days:

Until the middle of this year, FCR auctions were put out on a weekly basis. From 01.07.2019, the product period was reduced from one week to one day, with the call for tenders taking place every working day d-2 at 3 pm. In the course of a further harmonisation of the European FCR trading, the auctions are to be carried out from July 2020 d-1 at 8 a.m. and the product period is also to be further reduced to four hours.

  • Marginal Pricin:

Until now, price determination on the balancing market in Germany has differed from that on the spot market. While on the spot market all offers are remunerated according to the uniform price procedure, on the balancing energy markets the pay-as-bid procedure, i.e. remuneration of the price actually offered, applied until 1 July. At the beginning of July, the uniform price method (marginal pricing) was introduced on the frequency containment reserve market. Consequently, all players in the FCR cooperation are remunerated with the same price, provided that maximum import and export restrictions between the countries in combination with the core shares of the countries (minimum own FCR provision) do not lead to a decoupling of the markets.

Figure 1 analyses the development of the FCR prices in 2019. Before 1 July and thus before the adaption of the FCR auction, the volume-weighted, average weekly FCR price in the FCR cooperation was distributed equally over the seven days of a week. After 1 July, the local marginal price in Germany is shown according to the new FCR tenders. The daily base price of the German day-ahead market is shown for comparison, although it does not suggest a high correlation with the FCR price. It can be seen that the FCR price has been much more volatile since the beginning of July and has risen by an average of a good € 20 per MW per day. Here, the effects of the new pricing method compete with the shortened product periods. One month after the introduction of the new procedure, however, it is clearly too early to draw any well-founded conclusions about the price level. However, the shortened product periods will definitely enable suppliers to distribute their portfolios more flexibly on the electricity markets.

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Figure 1: FCR price in 2019 determined weekly FCR auctions (before 1 July) and by daily FCR auctions on working days (after 1 July.) based on [3] und [4]

Further information:

Table 1 gives an overview of the current country-specific characteristics of the core shares and the maximum import and export capacities. In the case of decoupling, local marginal prices occur for the respective countries, which affect the remuneration of the market participants.

Table

Table 1: Characteristics of FCR cooperation by country (based on FCR auction data for 31st July 2019 )

The third substantive change concerns settlement between transmission system operators:

  • TSO-TSO settlement

Until the end of June, the transmission system operators initially covered the national FCR requirements with the most favourable national offers and remunerated them accordingly. Additional offers were exported with an average offer price. From 01.07.2019, the TSO-TSO settlement model will apply. Exporting TSOs receive the determined marginal price from importing TSOs. If import capacities are exhausted, national offers are remunerated with a local marginal price (thus usually a higher price), while imports are remunerated with the cross-border marginal price. Likewise, when export capacities are exhausted, national offers are remunerated with a local marginal price (hence usually a lower price). The difference in payments resulting, for example, from a higher export remuneration than the local marginal price to be remunerated is summed up in the FCR cooperation and distributed proportionally according to the net position of the TSOs (awarded volume - demand).

 

Further Information:

 

 [1]   "Analyse und Bewertung von Möglichkeiten zur Weiterentwicklung des Regelenergiemarktes Strom", Berlin: bdew, Juli 2019
 [2]    "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) in accordance with Article 33 of Commission Regulation (EU) 2017/2195 establishing a guideline on electricity balancing", Brüssel: entso-e, Oktober 2018
 [3]    "Regelleistung.net – Datencenter", https://www.regelleistung.net/apps/datacenter/tenders/, Berlin, Pulheim, Bayreuth, Stuttgart: 50Hertz, Amprion, TenneT, TransnetBW
 [4]    "Market data - Day-Ahead Auction", https://www.epexspot.com/en/market-data/dayaheadauction, Paris: EPEX SPOT

 

 

(1) The PRL cooperation covers the markets of Germany, Belgium, the Netherlands, France, Switzerland and Austria.
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