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Getting to grips with the future balancing market

Steven Britton Steven Britton Senior Analyst
13th March 2019

Modification P344 Project TERRE Implementation into GB Market Arrangements was implemented into the BSC on 28 February, having been approved in August 2018. The change will introduce the Trans-European Replacement Reserves Exchange (TERRE) products to the GB market while simultaneously widening the range of parties that can participate in the Balancing Mechanism (BM).

Project TERRE is an effort to create a joint European platform for the exchange of energy from Replacement Reserves (RR) across the continent to meet the needs of system operators. Balancing service providers will be able to make offers to increase or reduce supply via National Grid Electricity System Operator (ESO) on an hourly basis to fulfil 15-minute delivery periods, which will be forwarded to a central platform called LIBRA. The TERRE market will be cleared every hour and each market will receive one price through a pay-as-clear mechanism, in contrast to the GB pay-as-bid mechanism in the BM. The TERRE product is set to become available by December 2019.

Technically, the modification allows TERRE to be included in the BSC calculations of imbalance prices and volumes, and to enable payments associated with TERRE to flow between the ESO and service providers. It sits alongside GC0097, which implements the TERRE arrangements into the Grid Code and allows for aggregation of demand side Balancing Mechanism Units (BMUs).

For parties that already participate in the BM, the main change will be the new market they can place their balancing volumes into, but P344 also introduces the concepts of Secondary BM Units and Virtual Lead parties (VLPs). VLPs – envisaged to be distributed generation, aggregators, and consumers – will be able to register Secondary BM Units without holding a licence and aggregate them independently, rather than have them fall into a supplier’s demand BM Unit.

In short, the Project TERRE changes will have three major repercussions:

  • grid will have a new tool to balance the system – calling more efficiently on lower priced continental providers could replace some volumes currently bought though the BM
  • balancing service providers will have their potential market expanded beyond GB, and
  • the pool of parties able to provide these services will be expanded to include new ones such as aggregators.

A key question will be the level of available capacity on the interconnectors, as little will change if GB is short and the interconnectors are already committed to export fully into GB. The most impact will be felt when the GB and continental system are not aligned and power can flow across the interconnectors, but these periods are likely to be few and far between due to the market coupling processes.

Overall, this is simultaneously an opportunity and a threat to providers of balancing services. On the one hand, regardless of their current status, their scope to offer services will be widened (significantly so, in the case of VLPs). On the other, a wider market means more competitors vying for contracts, and some of these may not even be from the GB market.

We provide regular coverage of these issues in our quarterly Flex Matters report, looking at the regulatory, charging and policy issues that affect flexibility providers. For more information please contact Steven Britton on 01603 542126 or s.britton@cornwall-insight.com.