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Balancing energy market participation through our Virtual Power Plant

Successful participation in the Austrian market for balancing energy

The trading desk of EVN could successfully participate in the Austrian market for balancing energy for the first time. Its energy bids were submitted and accepted by APG. Additional tests of products specification and trading schedules have been passed as well. It is important to highlight that EVN is one of the first participants in this market in Austria, which underlines the innovative approach of EVN and CyberGrid as pioneers into new market opportunities.

Q: Why is it so difficult to participate in the Austrian balancing market for mFRR?

A: Manual Frequency Restoration Reserve (mFRR) or tertiary reserve supports or replaces the short-term Frequency Containment Reserve (FCR) and the automatic Frequency Restoration Reserve (aFRR) when there are deviations in the power grid that couldn't be solved by FCR or aFRR. The rules to participate in mFRR auctions vary from country to country and are subject to different gate closures.

To participate in this market, you need to automate the 24/7 bidding of 15 min products. The trading algorithms, processes, and user interfaces need to support these new products. To achieve it, you need to have a software provider able to handle the increased level of complexity.  

The energy bidding brings the opportunity of short-term bidding on a rolling quarter-hourly basis. There are 96 auctions per day for aFRR and mFRR. In this case, the Transmission System Operator (TSO) specifications got adjusted during the implementation. This change requires a high level of automatization and expertise in asset operation and ancillary services trading. Participation in the short-term energy auctions requires a fully automated process of forecasting on multiple stages, asset optimization, bid optimization, and ancillary services trading via the TSO’s Application Programming Interface (API).

Q: Is mFRR a young market in Austria? 

A: The mFRR market was continuously improved over the last 10 years. In June 2023, the energy bidding for the mFRR market went live with the participation of the Austrian Power Grid (APG) in the Manually Activated Reserves Initiative (MARI). MARI is the European implementation project for the creations, operation, and future development of the European mFRR platform, as stated by ENTSO-E.

Q: How did EVN and CyberGrid achieve this milestone? 

A: We achieved it thanks to our expertise and knowledge in the field, and the effort of highly skilled professionals. Many talks and tests have been carried out with APG before accomplishing this milestone. It is about a great mixture of experience in software development, energy economic knowledge, expertise in power plants operation as well as on the highly complex balancing markets.

Q: What should happen to match the needs on the mFRR market?

A: Electricity generation and consumption must be in balance at all times. Fluctuations in consumption or generation that deviate from the schedules (forecasts) must be balanced out at short notice. To ensure this, APG procures control reserves through market-based tenders, which can then be activated at short notice if necessary.

It is about how to get into the merit order with the free bids procuring mFRR on the balancing market embraced by the MARI initiative. It is possible to bid with your marginal costs, as the pricing model is pay-as-cleared and therefore the most expensive activation determines the price. This means that all the market participants receive the same price for the power they are selling, which corresponds to the price of the last producer from which electricity was bought.

Q: How do you decide what strategy to follow when placing bids on the mFRR market? 

A: The asset pool of EVN, with its different quantity and quality of flexibility, continuously aims to achieve the optimal economic surplus from the different markets. With the new possibility of energy bidding, an additional marketing chance enlarges the strategy.

Further participation in the short-term aFRR and mFRR energy markets allows to additionally monetize such flexibilities that can only be reliably forecasted in less than 45 minutes before physical provision of ancillary services. Eventually, the entire available portfolio of flexibilities can be traded and monetized.

Q: What does this achievement imply at the national level? 

A: The new possibility will give flexibilities with short-term forecasts a new marketing possibility, which increases the efficiency and stability of the power grid.

Q: What is the main difference between the capacity and energy market?

A: The capacity market functions under the pay-as-bid model, and day-ahead bidding takes place at 10 am on the day before the actual production and delivery of electricity. That is to say, the capacity market clears on the day before and also pays capacity fees.

By contrast, when the capacity market is not contracted, we focus on the energy market, which functions with pay-as-cleared rules and with a gate closure time of 25 minutes before physical delivery. In this case, only the energy requested and provided is paid.

Q: How is the procurement of mFRR contributing to an integrated electricity market? 

A: As the outcome of the MARI initiative, the mFRR market is becoming a coupled market in continental Europe, which is a crucial part of the EU's goals to leverage integrated power markets.

Q: How prosperous mFRR can be in comparison to FCR and aFRR?

A: Control reserve products differ in their time requirements and necessities as well as in the quantities to be kept as capacity and called up as activations. That market potential varies over time. In general, mFRR shows less activations than aFRR. However, mFRR activations last for a longer timespan and typically show more attractive prices.

CyberGrid's flexibility management platform re-evaluates the market revenue potentials at least once per day. Prices vary from day to day, thus being essential to operate a flexibility trading platform which can dynamically adapt to changing price situations.

Q: Is the balancing energy market a very competitive market? 

A: Yes, it is a competitive young energy bidding market. In fact, APG presented a market activity of 3% compared to the combined balancing market activity. The TSO uses this market to update the merit order of energy bids derived from the capacity auctions with cheaper free bids, as part of the attempt of the TSO to increase competition.

The merit order is a ranking system that determines how multiple sources of electricity should be used in order to meet the demand. It considers the marginal cost of each source, being the lowest-cost sources used first.

Q: What are the product specifications that you have defined? Why are these so important?

A: The product specifications are published on the website of the TSO and accessible to all market participants. The optimization algorithms of the autobidder module calculate the optimal way to trade the available flexibility and automatically generate the bids for the available products based on the forecasts of prices and flexibilities.

Q: What trading schedules did you establish? How do you define them?

A: The market requirements always need to be fulfilled and are considered as technical restrictions in the bidding process. The trading schedules need to fit to the gate-closure-times of the various markets, as such the market specifications define the trading schedules.

Based on the technical capabilities of the available flexibility assets, CyberGrid aims to participate in all auctions as long as it makes sense from an economic perspective.

Q: What are the economic benefits of participating in the intraday market? 

A: The economic benefits depend on many factors. Especially, on the general market situation, the merit orders of the different markets, and the quality of the flexibility. The intraday market for ancillary services energy allows to place additional free bids for flexibilities that could not be forecasted reliably on the day before (for the capacity auction) or that have not been accepted in the capacity auction. By participating on the intraday energy auction, the Virtual Power Plant (VPP) operator can make sure that the available flexibility is traded 24/7 in order to earn the maximum possible revenues.

Q: Are there any advantages when participating in the intraday market instead of the day-ahead market? 

A: As the markets are closing sequentially, intraday and day-ahead markets complement each other. The balancing energy market will compete with the intraday wholesale market.

The advantage is that the available flexibility can be forecasted with higher reliability and the latest information can be processed. The intraday energy market for ancillary services is a valuable add-on to the day-ahead capacity market.

Q: Is it possible to participate in multiple markets at the same time? How is it done?

A: Yes, CyberGrid's Virtual Power Plant (VPP) is able to participate in multiple markets at the same time and provide multiple services in parallel. The most revenue of the different markets is calculated as a forecast. Sequentially, the flexibility is bidden onto the different markets considering the gate closures and the revenue potential of the other markets.

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