In order to give adequate incentives for Balance Responsible Parties (BRPs), the draft Code Balancing Code asserts that BRP aggravating imbalances shall not be priced less (for shortage) respectively more (for surplus) than the weighted average price for Frequency Restoration Reserve (FRR) and Replacement Reserve (RR) in the relevant area, in order to reflect the local imbalance situation.



Even after careful planning producers, suppliers and traders may find themselves out of balance and exposed to TSOs (Transmission System Operator) balancing and settlement regime. 


The structure of the draft Network Code Electricity Balancing is shaped by the three major parts:

(1) imbalance settlement,

(2) procurement of balancing services, and

(3) reservation and use of cross zonal capacity for balancing.


Balancing Energy


Balancing energy is defined by the TSOs' need to ensure that they will always be able to activate a sufficient amount of energy to balance the deviations between supply and demand in real-time. Balancing energy is provided by the Balancing Service Providers (BSPs) that are able to meet the necessary technical requirements to deliver this service. The balancing energy in real-time can thus be provided by the balancing resources, which were secured in advance as balancing reserves, or by other balancing resources that can offer balancing energy based on their availability in real-time.


Balancing Reserves


As TSOs are faced with the risk that they will not have enough offers for balancing energy from BSPs in real-time, they hedge this uncertainty by securing in advance a sufficient amount of power capacity available in their Load-Frequency Control (LFC) Area.


Hence, balancing reserve constitutes an option which gives the TSOs the possibility to activate the certain amount of balancing energy within a certain timeframe. It is typically defined as the available generation or demand capacity which can be activated either automatically or manually to balance the system in real-time. The TSOs usually check and/or conclude contracts to guarantee they have access to these balancing reserves ahead of real-time.


Imbalance Responsibility


In a liberalised market, the market players have an implicit responsibility to balance the system through the balance responsibility of market participants, the so called "Balance Responsible Parties" (BRPs).

In this respect, the BRPs are financially responsible for keeping their own position (sum of their injections, withdrawals and trades) balanced over a given timeframe – the imbalance settlement period. The remaining short and long energy positions in real-time are described as the BRPs' negative and positive imbalances respectively.


The identification of Settlement Processes Required in a European Balancing Market


Pursuant to the ENTSO-E propositions included in the draft Balancing Code the following settlement processes will be required in a European Balancing Market:


1. TSO to Balance Service Providers (BSP): pricing method for balancing energy products:

- Settlement of the local activated balancing energy,

- Settlement of the contracted reserves;


2. Settlement between TSOs (Common Merit Order/balancing function):

- Settlement of intended exchange of Load-Frequency Control Area imbalance due to activation on Common Merit Order List,

- Settlement of intentionally exchanged energy due to imbalance netting,

- Settlement of the unintentional deviations;


3. TSO to BRP.


Imbalance Settlement


Imbalance settlement represents a core element of balancing markets. Depending on the state of the system, an imbalance charge is imposed per imbalance settlement period on the BRPs that are not in balance. It typically aims at recovering the costs of balancing the system and may include incentives for the market to reduce imbalances – e.g. with references to the wholesale market design – while transferring the financial risk of Imbalances to BRPs.


It should be noted that all energy settlements involve:


- energy volumes (kWh, MWh)

- per specific time units (this would be the period of time used for calculating the volume of balancing energy to be settled. For example, in case of TSO-BSP energy settlements and in the case of imbalance settlement, this period of time is the imbalance settlement period)

- in a specific direction (positive for [relative] injections, negative for [relative] withdrawals) due to a specific process subject to settlement described in this NC (e.g. imbalance netting, FRR process...),

- against a specific price, (local currency per MWh, e.g. €/MWh),

- to be settled between a TSO and a specific counterpart. (Central Counterparty, BRP, BSP, another TSO).


Imbalance Calculation


The rules on imbalance calculation are set out in Article 49 of the draft Code. This Article describes how the imbalance for each Balance Responsible Party (BRP) is calculated from three volumes (notified position, allocated value, adjusted volume).

The sum of the trades of a BRP (buy and sell) to others should match the net energy infeed/withdrawal over the connections for which the BRP carries responsibility. In order to assess this, the following volumes are therefore defined:

- A notified position (scheduled position) reflecting the final net volume of commercial transactions on all timescales on organised markets or between BRP's.

- An allocated value (usually based on metered values or profiled values), reflecting the net volume of physical generation and consumption over the connections for which the BRP is responsible for the imbalances.

- An adjusted volume reflecting the activation of balancing energy bids from the associated with this BRP, at least at balancing energy bid level.


All TSO's are prescribed by the Code to establish a procedure to determine each of these three volumes. 


Imbalance Pricing


The imbalance price will be related to what the TSO or TSOs have done or avoided to restore system balance or frequency, or when relevant what TSO has done to replace reserves. Imbalances will be settled in each direction that is shortage or surplus. Principles of the pricing of the imbalances are relevant for the settlements between the TSO and the BRPs.



Balance Responsible Party Imbalance

TSO Activating

short (-)

neutral (0)

long (+)














+ downward







In order to give adequate incentives for BRPs, the draft Code asserts that BRP aggravating imbalances shall not be priced less (for shortage) respectively more (for surplus) than the weighted average price for Frequency Restoration Reserve (FRR) and Replacement Reserve (RR) in the relevant area, in order to reflect the local imbalance situation.

For marginal pricing of balancing energy the average price will equal the marginal price thus giving the appropriate incentives to the BSP to provide the requested volumes.

By including the value of the avoided activation in these formulae, this value will appear as the imbalance price in TSO has avoided all activation.

In case of both upward and downward activation within the same imbalance settlement period, at least one of the imbalances will be priced according to the aggravating principle.

These are high level principles; the price in the other, unmentioned directions (not aggravating imbalances) is not prescribed.

Also in case of aggravating imbalance it is not prohibited to exceed the price condition. 


Financial Neutrality of the TSO with regard to the Balancing Energy Settlements

The draft Balancing Code stressed the need to ensure the financial neutrality of the TSO with regard to the Balancing Energy settlements described in the draft Code.

Financial neutrality in that regard means that TSO is not allowed to gain profit from any balancing energy settlement process.