As Project Terre gets the go-ahead: from the New Power archive – European reserve auction platform ‘could cut balancing costs by a quarter’

Ofgem has approved a modification that will enable UK parties to participate in Europe’s balancing market. The change paves the way for the parties to participate in the Trans-European Replacement Reserves Exchange (Project Terre) via National Grid.

In February 2018, New Power Report described progress towards Terre and discussed what it would mean for UK participants. Read more:

National Grid believes that a new pan-European market for reserve power can meet 25% of the GB system’s balancing needs and cut GB balancing costs by €13 million a year. But the new market is expected eventually to replace National Grid’s Stor product, often seen as an entry into the market for new participants.

Regulations that enable the so-called Terre (Trans-European Replacement Reserves Exchange) market came into force in December and it is due to go live in autumn next year. Generators with as little as 1MW of supply can participate and so can smaller plant, via aggregators. Demand-side response providers can bid into the market on the same basis.

Final details on implementing the market are still being discussed. Consultations on changes to the Grid Code and Balancing and Settlement Code (which are being processed in tandem) closed at the end of January, but there will be a final opportunity to comment on both proposals in April or May before both are submitted for a final decision by Ofgem.

The new market is designed to facilitate close to real-time (less than one hour) exchange. In operation, the market works via system operators (SOs) in participating countries, that inform the Terre platform (known as Libre and now being developed) of their reserve needs. The SOs then pass on offers of reserve from participants in their areas, which enter hourly auctions comprising four 15-minute periods (which can be linked). The Libra market platform manages the auction and returns the result to the system operators.

In GB, National Grid sends dispatch instructions to winning bidders for each 15-minute slot. Bids that are problematic (for example if there are local constraints) may be passed to the platform for information-only.

Providers can “stack” revenues by offering plant in both the GB Balancing Market and Terre. But they will have to choose (and can do so on up to a daily basis) whether to offer reserve in the Stor market or Terre, because the two products have a similar function.

 

Threats and opportunities

The new market will give GB participants the opportunity to provide reserve to other European markets but based on current reserve prices, National Grid expects net flows will be into GB.

At a recent update on Terre progress, hosted by Elexon, some companies told New Power they were wary of Terre because it would enable European participants to undercut those in GB because generators pay lower or zero transmission charges in those markets (and avoid UK carbon costs).

Concerns were also expressed about fairness in how the auction results data would be published, because the GB’s market information platform provides far more information – available to European participants – than do European platforms.

Others questioned how much practical effect the market would have in GB because interconnection capacity would limit the amount of power imported. However, National Grid said it expected the new market to be “very useful and very liquid”, estimating that up to 3.8GW would be offered from GB sources alone.

Several companies had a “wait and see” attitude, one saying it would delay a planned entry into the Balancing Market because the advent of Terre would make both less predictable.

Final details of the market implementation are still being worked out in the BSC and Grid Code modifications.

 

New route into BSC

Terre transactions will be settled by Elexon through the Balancing and Settlement Code (BSC), as with other balancing markets. To participate, companies will have to sign up to the BSC. That has a cost attached, and has relatively onerous requirements that mean some companies have avoided becoming BSC parties.

To ensure the Terre market is open to new entrants – especially aggregators and those offering demand-side response – a new “virtual” type of BSC participant is being developed. Parties who join under the new category will have different entry requirements. They will also have lower costs and credit requirements, largely because these parties will not carry responsibility to balance and so have fewer potential liabilities. Elexon has set up a market entry group to assist these parties with the process, which it expects to take 3-6 months once final details have been confirmed.

Final decisions on the Grid Code and BSC modifications are due in the summer.

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