Balancing services help maintain the frequency of a power grid by providing short-term energy to balance out deviations. They include balancing energy, which system operators use to maintain frequency, and balancing capacity, which is flexible capacity held available to provide balancing energy. In Europe, balancing services are divided into frequency containment reserve (FCR), automatic frequency restoration reserve (aFRR), and manual frequency restoration reserve (mFRR). Balancing groups manage the balancing of power feed-in and consumption within an operating region to minimize frequency fluctuations and avoid over- or underproduction.

1. What are
Balancing Services
(in Power System) ?

2. Balancing Services are reactive short-term means to level out frequency
deviations in the power grid. Balancing Services (sometimes also
called control reserve) is one out of many ancillary services that system
operators have to provide a secure power supply.
Balancing Services includes Balancing Energy and Balancing Capacity.
Balancing Energy means the energy which is used by system operators
to perform the maintenance of the frequency and Balancing Capacity
refers to a flexible capacity which the provider has agreed to keep
available for a certain period in order to provide balancing energy. [1]

3. 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.

4. 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).

5. 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).

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. ENTSO-E Definition:
•‘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;

13. What is a Balancing Group?
On the energy market, the balancing group (also known as the balancing
authority) accounts for all power produced and/or consumed by a collection
of assets within the group. Accounting for the group’s net production or
consumption serves as an instrument for providing a particular operating
region the precise amount of power it needs.
The group manages the balancing act between power feed-in and off-take.
This is designed to avoid over- and underproduction as much as possible by
efficiently utilizing the power grid with minimal frequency fluctuations.
Ultimately, the goal is to simultaneously match the amount of power
consumed and produced within the grid.

15. The number of balancing groups varies from country to country. Germany, as
an example, has a high number of balancing groups, while the United States
only has 66. Each balancing group has an ‘owner’ known as the balancing
responsible party (BRP). The BRP is tasked with preparing accurate
forecasts of feed-in and off-take.
Additionally, the BRP regulates any power shortfalls or surpluses by trading
on short-term power markets to arrive at the right amount of power for their
balancing group. The BRP’s forecasts and dispatch schedules are usually
transmitted to the transmission system operator (TSO) to be used in load
flow calculations.
The increased prevalence of renewable energies makes these forecasts
more complicated: some assets are affected by weather events or seasonable
variables, resulting in volatile power production.

16. These fluctuations can be extreme. To mitigate the risk, a balancing group
should contain a diverse portfolio of both volatile and flexibly-controllable
electricity producers and consumers. Biogas, CHP plants, or hydropower
plants are examples of controllable power producers. Power consuming
units can also provide a degree of flexibility if their operation can be shifted
to different times.
Batteries are also controllable, but act as both a power “producer” and
“consumer.” Including easily controllable and/or geographically diverse
assets in a portfolio is one important way to avoid power imbalances.

17. Balance in the Balancing Group
TSOs are required to maintain balance should a discrepancy between
scheduled and delivered quantities of electricity exist: They must compensate
for electricity shortfalls with ancillary services to ensure a stable grid.
Here is an example to illustrate the procedure: An electricity trader manages a
balancing group containing several wind turbines. This includes daily forecasts
of the assets’ power production.
However, an unexpected storm front ends up generating more power during
certain quarter-hour intervals than the trader forecasted. The trader faces a
decision: either ’smooth out’ the balancing group by selling surplus power on
the intraday market for the corresponding quarter-hour interval, or, if possible,
reduce power production from other assets in the balancing group. Depending
on the TSO, a BRP may be subject to financial penalties in the event of an
imbalance.