Balancing Service Provider (BSP)
Balancing Service Provider (BSP) in the European Union Internal Electricty Market is a market participant providing balancing services to its Connecting TSO, or in case of the TSO-BSP Model, to its Contracting TSO.
According to Article 2(6) of the Electricity Balancing Network Code (Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing - EBGL), Balancing Service Provider is a market participant with reserve-providing units or reserve-providing groups able to provide balancing services to Transmission System Operators (TSOs). Article 14(1) of the said Commission Regulation stipulates that each TSO is responsible for procuring balancing services from BSPs in order to ensure operational security.
The so-called 'Winter Energy Package' defined a BSP as a market participant providing either or both balancing energy and balancing capacity to TSOs - Article 2(2)(k) of the European Commission's Proposal of 30 November 2016 for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), COM(2016) 861 final 2016/0379 (COD). This definition has been finally included in Article 2(12) of the Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity.
According to Article 15(1) of the said Commission Regulation (EU) 2017/2195, Distributon System Operators (DSOs), TSOs, BSPs and BRPs are required to cooperate in order to ensure efficient and effective balancing.
BSPs' role
In legal terms the role of Balancing Service Providers is described in Article 16 of the said Commission Regulation (EU) 2017/2195. However, when analysing BSPs' role in the electricity market it is useful to note that electricity balancing involves not only technical arrangements set out to ensure system stability but also have implications on competition as procuring balancing services normally entails commercial arrangements with imbalances levied on the market through settlement mechanisms.
The Commission Staff Working Document document of 23 November 2017 (accompanying Commission Regulation establishing a guideline on electricity balancing {SWD(2017) 383 final}, p. 3, 14) reminded that:
- balancing refers to the situation after markets have closed (gate closure) in which a TSO acts to ensure that demand is equal to supply,
- liberalisation of the electricity market introduced the concept of balancing as a competitive market, where the demand and supply for balancing services are met.
Thus, the balancing market is characterised by the two core components intrinsically involving BSPs - the procurement of balancing services and the settlement of imbalances - where main stakeholders are assigned the following roles:
- TSOs keep the overall supply and demand in balance in physical terms at any given point in time, this balance guarantees the secure operation of the electricity grid at a constant frequency of 50 Hertz;
- Balance Responsible Parties (BRPs) such as producers and suppliers keep their individual supply and demand in balance in commercial terms, BRPs need to be able to trade via forward markets and at the day-ahead stage, as well as to fine-tune their position in the same trading day (e.g. when wind forecasts or market positions change);
- BSPs such as generators or demand facilities balance out unforeseen fluctuations on the electricity grid by rapidly increasing or reducing their power output, BSPs receive a capacity payment for being available when markets have closed (balancing capacity) and an energy payment when activated by the TSO in the balancing market (balancing energy). Payments for balancing capacity are often socialized via the transmission network tariffs, whereas payments for balancing energy usually shape the price that BRPs who are out of balance have to pay (imbalance price).
Leonardo Meeus and Tim Schittekatte underline that in the balancing capacity markets "BSPs are paid in order to reserve capacity for the duration of the contract. This implies that a BSP cannot commit this capacity to other markets (such as the DAM or IDM). Reserved balancing capacity is expected to be available in real-time, i.e. they have to bid in real- time balancing energy markets. If not, they will have to pay a fine. This does not mean that BSPs, who sold balancing capacity, will finally have to deliver the balancing energy. The activation of balancing energy only occurs when in real-time the balancing energy bid is accepted by the TSO. The idea behind reserving balancing capacity for the different reserve types is to make sure that there is always an adequate safety margin, i.e. enough available back-up balancing resources to deal with unexpected events.
In the balancing capacity market, BSPs offer upward and/or downward balancing capacity. Upward balancing capacity means that a BSP will reserve a margin to inject balancing energy into the system when activated. Upwards balancing energy is needed when there is less electricity supply than demand (energy deficit). Vice-versa for downward balancing capacity" (Introduction to network tariffs and network codes for consumers, prosumers and energy communities, Technical Report, European University Institute, Badia Fiesolana, July 2018, p. 39).
Registration BSPs in the CEREMP
A company, which is neither an electricity supplier nor producer, but only active in flexibility market as BSP for the TSO (providing demand response services to the TSO balancing) may wonder whether it is mandatory for BSPs to register in the CEREMP. The answer depends on whether a given BSP enters into transactions (including the placing of orders to trade), in wholesale energy markets. If the BSP does so, it must register with CEREMP. The issue may be debatable, but given that BSPs, by definition, provide balancing services, balancing energy including (which is wholesale energy product in the meaning of REMIT), BSPs in my opinion are wholesale energy market participants and, consequently, must register with the CEREMP. To decide the issue definitely, the scope of activities of concrete BSP must be analysed.
Terms and conditions for BSPs
The terms and conditions related to electricity balancing require that each balancing energy bid from a Balancing Service Provider is assigned to one or more BRPs - note however, that not all BRPs in all EU Member States are also BSPs, BRPs which are not BSPs are therefore exposed to high risks without being able to benefit from high balancing energy prices at the same time.
According to Article 18(4), (5) and (7) of the said Commission Regulation the terms and conditions developed by each TSO for BSPs must:
(a) define reasonable and justified requirements for the provisions of balancing services;
(b) allow the aggregation of demand facilities, energy storage facilities and power generating facilities in a scheduling area to offer balancing services;
(c) allow demand facility owners, third parties and owners of power generating facilities from conventional and renewable energy sources as well as owners of energy storage units to become BSPs;
(d) require that each balancing energy bid from a BSP is assigned to one or more BRP to enable the calculation of an imbalance adjustment.
The said terms and conditions for BSPs must contain:
(a) the rules for the qualification process to become a BSP;
(b) the rules, requirements and timescales for the procurement and transfer of balancing capacity;
(c) the rules and conditions for the aggregation of demand facilities, energy storage facilities and power generating facilities in a scheduling area to become a BSP;
(d) the requirements on data and information to be delivered to the connecting TSO and, where relevant, to the reserve connecting DSO during the prequalification process and operation of the balancing market;
(e) the rules and conditions for the assignment of each balancing energy bid from a BSP to one or more BRP;
(f) the requirements on data and information to be delivered to the connecting TSO and, where relevant, to the reserve connecting DSO to evaluate the provisions of balancing services;
(g) the definition of a location for each standard product and each specific product;
(h) the rules for the determination of the volume of balancing energy to be settled with the BSP;
(i) the rules for the settlement of BSPs;
(j) a maximum period for the finalisation of the settlement of balancing energy with a BSP for any given imbalance settlement period;
(k) the consequences in case of non-compliance with the terms and conditions applicable to BSPs.
Each connecting TSO may include the following elements in the proposal for the terms and conditions for BSPs:
(a) a requirement for BSPs to provide information on unused generation capacity and other balancing resources from balancing service providers, after the day-ahead market gate closure time and after the intraday cross-zonal gate closure time (IDCZGCT);
(b) where justified, a requirement for BSPs to offer the unused generation capacity or other balancing resources through balancing energy bids or integrated scheduling process bids in the balancing markets after day ahead market gate closure time, without prejudice to the possibility of BSPs to change their balancing energy bids prior to the balancing energy gate closure time or the integrated scheduling process gate closure time due to trading within intraday market;
(c) where justified, a requirement for BSPs to offer the unused generation capacity or other balancing resources through balancing energy bids or integrated scheduling process bids in the balancing markets after intraday cross-zonal gate closure time;
(d) specific requirements with regard to the position of BRPs submitted after the day-ahead market timeframe to ensure that the sum of their internal and external commercial trade schedules equals the sum of the physical generation and consumption schedules, taking into account electrical losses compensation, where relevant;
(e) an exemption to publish information on offered prices of balancing energy or balancing capacity bids due to market abuse concerns;
(f) an exemption for specific products to predetermine the price of the balancing energy bids from a balancing capacity contract;
(g) an application for the use of dual pricing for all imbalances.
Taking into account these provisions it is useful to note that, if justified, TSOs have the right to compel BSPs to offer their resources as balancing energy when these resources are not committed in other preceding markets (Introduction to network tariffs and network codes for consumers, prosumers and energy communities, Technical Report, Leonardo Meeus, Tim Schittekatte, European University Institute, Badia Fiesolana, July 2018, p. 31).
ENTSO-E Supporting Document for the Network Code on Electricity Balancing of 23 December 2013 and the amended version of 6 August 2014
BSPs have to pass a pre-qualification test of the Connecting TSO in order to be able to participate to the procurement processes. Once qualified, BSPs must submit their service proposals prior to a deadline named procurement gate closure time. This procurement gate closure time can vary depending on a number of factors including product and location. BSPs which have been selected in the procurement of Balancing Capacity are then obliged to submit the services for relevant volumes and time period they have been selected for. However, in addition to this requirement, any BSP can submit bids for Balancing Energy regardless of whether or not they have been contracted for Balancing Capacity or not. All the Balancing Energy bids have to be provided before a deadline which is close to real-time, namely the Balancing Energy Gate Closure Time. Finally, as a general requirement, it is mandatory that for a given product the Reserve Providing Unit, Reserve Providing Group, Demand Units or aggregators and the associated BRP to be in the same Responsibility Area or Scheduling Area where appropriate.
Settlements between TSOs and BSPs
Settlements between Transmission System Operators and Balancing Service Providers are among tasks and functions that are fundamental to the core objectives of ensuring operational security and integrating the balancing market and thus cannot be delegated or assigned by the TSOs to any third parties. The key task related to TSO-BSP settlement is the calculation of activated volume of balancing energy. TSO has information about activation times and amount as well as other relevant detailed information according to the product specification e.g. about ramping.
Based on this information the total activated volume is calculated and for invoicing also price information about each activation needs to be included. In addition to balancing energy also balancing capacity is part of TSO-BSP settlement.
The aforementioned Supporting Document for the Network Code on Electricity Balancing reasons the above assignment constraints in the following way:
1. assignment of the said task to a third party tends not to bring any added value, because all the calculation has to be done anyway by the TSO to control invoicing, TSOs also monitor that (pre)qualification criteria as well as other terms and conditions are fulfilled;
2. on the event of any breaches, it is preferable that the TSO is in direct contact with the BSP;
3. a direct contractual relationship between TSOs and BSPs makes handling of such situations easier to manage and thus more efficient.
The Agency for the Cooperation of Energy Regulators (ACER) in its Recommendation No 03/2015 of 20 July 2015 on the Network Code on Electricity Balancing suggests the clarification that requirement on BSPs to offer their unused generation capacity or other balancing resources through balancing energy bids in the balancing markets after day-ahead market gate closure time is without prejudice to the possibility of BSPs to change their balancing energy bids prior to the balancing energy gate closure time due to trading within the intraday market.
The submission by a Balancing Service Provider of balancing capacity and balancing energy bids may be temporarily suspended by TSO in situations indicated in Article 35 of the Network Code on Emergency and Restoration (Commission Regulation (EU) 2017/2196 of 24 November 2017 establishing a network code on electricity emergency and restoration - NC ER).
The use of cross-zonal capacity by Balancing Service Providers
Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing envisions the rule (Article 43 - see box) that the BSPs which have a contract for balancing capacity with a TSO on the basis of a TSO-BSP Model have the right to use cross-zonal capacity for the exchange of balancing capacity - if they are holders of physical transmission rights (PTRs). In such a case BSPs nominate their physical transmission rights for the exchange of balancing capacity to the concerned TSOs. Such physical transmission rights provide the right to their holders to nominate the exchange of balancing energy to the concerned TSOs and will therefore be excluded from the application of the UIOSI principle.
Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing
Article 43
Use of cross-zonal capacity by balancing service providers
1. Balancing service providers which have a contract for balancing capacity with a TSO on the basis of a TSO-BSP model pursuant to Article 35 shall have the right to use cross-zonal capacity for the exchange of balancing capacity if they are holders of physical transmission rights.
2. Balancing service providers which use cross-zonal capacity for the exchange of balancing capacity on the basis of a TSO-BSP model pursuant to Article 35 shall nominate their physical transmission rights for the exchange of balancing capacity to the concerned TSOs. Such physical transmission rights shall provide the right to their holders to nominate the exchange of balancing energy to the concerned TSOs and shall therefore be excluded from the application of the UIOSI principle.
3. Cross-zonal capacity allocated for the exchange of balancing capacity in accordance with paragraph 2 shall be included as already allocated cross-zonal capacity in the calculations of cross-zonal capacity.
Independent BSP
The said ACER's Recommendation of 20 July 2015 is noteworthy for one more important point - ACER proposes to introduce a new provision to the Electricity Balancing Network Code related to the independent BSP. The ACER acknowledges that providers of the demand-side response (DSR) may face important entry barriers into the balancing services market and difficulties to compete on a level playing field in particular with energy suppliers. For this reason the ACER proposes that, when such problems occur, the EU Member States or National Regulatory Authorities should mitigate them by either implementing adequate measures to mitigate entry barriers and ensure the demand-side response can compete on a level playing field or by enabling the provision of demand-side response independently of energy suppliers. In this respect, the ACER has defined standard and harmonised requirements for provision of demand-side response independently of energy suppliers.
The requirements for the provision of demand-side independently of energy suppliers consist of:
– the provision that the BSP can provide the demand-side response service from the demand facility without the need for consent or a contract with the energy supplier of that demand facility or its BRP,
– the requirement that BSPs providing demand-side response independently of energy suppliers should be balance responsible,
– the requirements for TSOs to adjust the final position and determine the allocated volume for the BRP of the BSP and for the BRP of the energy supplier, and
–the requirement for TSOs to establish the financial settlement between the BRP of the BSP and BRP of the energy supplier.
ACER believes that such harmonised requirements on provision of demand-side response independently of energy suppliers should help to facilitate greater participating of demand-side response in the balancing market.
Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing
Article 16
Role of balancing service providers
1. A balancing service provider shall qualify for providing bids for balancing energy or balancing capacity which are activated or procured by the connecting TSO or, in a TSO-BSP model, by the contracting TSO. Successful completion of the prequalification, ensured by the connecting TSO and processed pursuant to Article 159 and Article 162 of Regulation (EU) 2017/1485 shall be considered as a prerequisite for the successful completion of the qualification process to become a balancing service provider pursuant to this Regulation.
2. Each balancing service provider shall submit to the connecting TSO its balancing capacity bids that affect one or more balance responsible parties.
3. Each balancing service provider participating in the procurement process for balancing capacity shall submit and have the right to update its balancing capacity bids before the gate closure time of the procurement process.
4. Each balancing service provider with a contract for balancing capacity shall submit to its connecting TSO the balancing energy bids or integrated scheduling process bids corresponding to the volume, products, and other requirements set out in the balancing capacity contract.
5. Any balancing service provider shall have the right to submit to its connecting TSO the balancing energy bids from standard products or specific products or integrated scheduling process bids for which it has passed the prequalification process pursuant to Article 159 and Article 162 of Regulation (EU) 2017/1485.
6. The price of the balancing energy bids or integrated scheduling process bids from standard and specific products pursuant to paragraph 4 shall not be predetermined in a contract for balancing capacity. A TSO may propose an exemption to this rule in the proposal for the terms and conditions related to balancing set-up pursuant to Article 18. Such an exemption shall only apply to specific products pursuant to Article 26(3)(b) and be accompanied with a justification demonstrating higher economic efficiency.
7. There shall be no discrimination between balancing energy bids or integrated scheduling process bids submitted pursuant to paragraph 4 and balancing energy bids or integrated scheduling process bids submitted pursuant to paragraph 5.
8. For each product for balancing energy or balancing capacity, the reserve providing unit, the reserve providing group, the demand facility or the third party and the associated balance responsible parties pursuant to Article 18(4)(d), shall belong to the same scheduling area.
Annex I to the ACER Decision 01/2020 of 24 January 2020 on the methodology to determine prices for the balancing energy that results from the activation of balancing energy bids, Recital 12
The cross-border marginal pricing incentivises the balancing service providers (hereafter referred to as “BSPs”) to submit bids with prices equal to the respective marginal costs. At the same time, the AOF selects the overall cheapest bids for the satisfaction of the balancing energy demand. The result should decrease balancing costs, and hence, increase efficiency of the balancing energy markets.
Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing
Article 18(7)
Each connecting TSO may include the following elements in the proposal for the terms and conditions for balancing service providers or in the terms and conditions for balance responsible parties:
(a) a requirement for balancing service providers to provide information on unused generation capacity and other balancing resources from balancing service providers, after the day-ahead market gate closure time and after the intraday cross-zonal gate closure time;
(b) where justified, a requirement for balancing service providers to offer the unused generation capacity or other balancing resources through balancing energy bids or integrated scheduling process bids in the balancing markets after day ahead market gate closure time, without prejudice to the possibility of balancing service providers to change their balancing energy bids prior to the balancing energy gate closure time or the integrated scheduling process gate closure time due to trading within intraday market;
(c) where justified, a requirement for balancing service providers to offer the unused generation capacity or other balancing resources through balancing energy bids or integrated scheduling process bids in the balancing markets after intraday cross-zonal gate closure time;
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