COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Commission Regulation (EU) No .../... establishing a Guideline on Electricity Balancing
Date: 2017-11-23
Institutions: Directorate-General for Energy, European Commission
Subjects: European Union Agency for the Cooperation of Energy Regulators, electrical energy, electricity supply, energy distribution, energy grid, energy law, energy storage, energy supply, security of supply, trans-European network

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   EUROPEAN COMMISSION  Brussels, 23.11.2017  SWD(2017) 382 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Commission Regulation (EU) No .../...  establishing a Guideline on Electricity Balancing  {C(2017) 7774 final} - {SWD(2017) 383 final}  
 
 
Executive Summary Sheet 

Impact assessment on the Commission Regulation establishing a Guideline on Electricity Balancing 

A. Need for action 

Why? What is the problem being addressed?  
Balancing mechanisms are not a solely technical issue ensuring system stability but have significant commercial 
implications and in turn implications for competition. When TSOs intervene to balance out demand and supply, 
they often face insufficient competition for balancing services due to few available suppliers to secure the 
balance.  The  lack  of  competition  results  from  the  manner  in  which  balancing  energy  prices  are  set  and 
insufficient use of cross-border transmission capacity (i.e. fragmented national balancing markets). Until today, 
large disparities exist in balancing energy prices in Europe and efficient rules that allow an efficient use of the 
cross-border  transmission  capacity  for balancing are  missing.  The  current  methods  used  to  activate  balancing 
energy are not exploiting the full potential of the grid and leaves available capacities unused. Current balancing 
energy prices do not always reflect scarcity and reward flexibility. 

What is this initiative expected to achieve?  
Increasing amounts of renewable electricity, in particular from wind generation, and other changes to achieve a 
low carbon economy requires that the electricity system is able to integrate more volatile and more distributed 
production sources. The proposed implementing act is  expected to  safeguard a balance  between electricity 
supply and demand at the lowest possible cost to customers so as to complete the integration of the internal 
electricity market. 

What is the value added of action at the EU level?  
The  proposed  measures  will  addresses  the  inefficient  use  of  the  European  electricity  transmission  network  by 
means of improving coordination, harmonisation and transparency of balancing markets, maximising the usage 
of available cross-border transmission capacity for balancing purposes and enhancing, at the same time, the 
system  security  and  the  integration  of  electricity  markets  to  promote  competition.  Furthermore,  a  minimum 
degree of harmonisation will be achieved to complete the integration of the internal electricity market leaving the 
implementation of the rules therein to TSOs and NRAs. 

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
The functioning of balancing markets could be improved by addressing the causes for the lack of competition for 
balancing services, namely: 

  by harmonising the pricing methodology for balancing energy; and 
  by using cross-border transmission capacity for exchanging balancing energy. 

To this end, the following policy options are being considered: 

  Baseline: no further EU action 
  Option 1: harmonisation of the pricing methodology for balancing energy 

o  Option 1.A: pay-as-cleared methodology 
o  Option 1.B: pay-as-bid methodology 

  Option 2: usage of the cross-border transmission capacity for exchanging balancing energy 

o  Option 2.A: only cross-border exchanges 
o  Option 2.B: cross-border and national exchanges 
o  Option 2.C (discarded): enforcing regional regulated entities performing the tasks of supranational 

balancing operators  

The  assessment  has  revealed  that  Option  1.A  is  a  prerequisite  for  the  operationalization  of  any  of  the  Sub-
Options under 2 and that Option 1.A and the Sub-Options under 2 are thus complementary. Although Option 2.C 
is expected to bring the biggest benefits, there is currently no legal basis in the Third Energy Package to support 
it and it has therefore been decided not to proceed with this Option.   

The  assessment  showed  that  Option  2.B  in  combination  with  Option  1.A  is  the  most  adequate  choice  to 
achieve  the  objectives  of  the  proposal.  Such  preference  assumes  a  pay-as-cleared  ('marginal  pricing') 
methodology for balancing energy, a standardisation of balancing products and the establishment of European-
wide  balancing  platforms  to  facilitate  the  coordination  of  operational  processes  between  transmission  system 
operators. Such coordination still relies on the concept of local responsibilities within individual balancing zones, 
which consist of one or more control areas but do not necessarily cover more than one Member State. Thus, the 
approach is compatible with the current operational security principles. 

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Who supports which option?  
Most  stakeholders  are  in  favour  of  implementing  a  pay-as-cleared  methodology  together  with  a  binding 
regulation  on  both  cross-border  and  national  exchanges  for  balancing  energy.  In  March  2016,  the  Florence 
Forum stressed the importance of balancing markets for a well-integrated and functioning internal energy market 
and encouraged the Commission to swiftly bring the Regulation establishing a Guideline on Electricity Balancing 
to Member States. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?  
Option 2.B in combination with Option 1.A can  deliver significant welfare  benefits through the more efficient 
use of the European electricity transmission infrastructure, leading to more liquidity and more competition. The 
proposed  measures  will  help  to  channel  generation  investments  to  places  where  they  are  most  efficient  and 
reduce the need to invest in grid extension or backup capacities for intermittent energies.  
In  Option  2.B,  TSOs  are  not  only  allowed  to  net  their  imbalances,  but  also  to  exchange  standard  balancing 
products. The exchange of standard balancing products results in a more cost-efficient utilisation of resources: 
the  most  expensive  of  the  available  units  are  used  for  downward  regulation,  while  the  cheapest  ones  provide 
upward  regulation.  The  combined  effect  of  imbalance  netting  and  cross-border  exchange  of  balancing  energy 
result  in  savings  of  around  479  M€  per  year  compared  with  the  baseline.  Only  option  2.C  is  able  to  capture 
almost all of these benefits, Option 2.A will fall short of doing so. 

What are the costs of the preferred option (if any, otherwise main ones)?  
The total costs under Option 2.B in combination with Option 1.A are associated with two key aspects. The first 
set of costs is associated with the development of a common technical controller, and a settlement process and 
system  for  imbalance  netting.  The  second  set  of  costs  pertains  to  establishing  European-wide  balancing 
platforms,  including  provisions  for  clearing  process  and  algorithm,  hosting,  maintenance  and  support.  Costs 
under  Option  2.B  are  between  76.1  and  96.4  M€  of  development  costs,  and  between  1.8  and  4.6  M€  as 
additional annual operating costs. There may potentially be some additional costs for stakeholders through the 
change  of  some  balancing  procedures  in  the  new  system,  but  also  cost  savings,  as  there  will  be  more 
harmonised products and services European wide. 

What are the impacts on SMEs and competitiveness?  
The  Regulation  will  facilitate  the  participation  of  renewable  energy  sources  and  demand  response  in  the 
balancing  markets.  It  is  expected  to  boost  the  future  competitiveness  of  EU  technology  providers  such  as  the 
electrical and electronic engineering industry, which consists mostly of SMEs. 

Will there be significant impacts on national budgets and administrations?  
The  Regulation  will  aim  to  improve  coordination  among  TSOs,  by  creating  more  transparent  and  harmonized 
rules. This is expected to reduce and simplify the participation in the balancing market. 

Will there be other significant impacts?  
We do not expect other significant impacts. 

Proportionality? 
Option 2.B in combination with Option 1.A achieves a balance between improving the overall competitiveness, 
efficiency  and  reliability  of  the  electricity  markets,  enabling  the  transition  towards  a  low  carbon  electricity 
production, while promoting European cooperation and leaving scope for national implementation. 

D. Follow up 

When will the policy be reviewed?  
The  Regulation  contains  specific  provisions  to  monitor  the  success  of  the  proposed  measures.  Based  on  this 
monitoring  and  taking  into  account  further  developments  of  the  electricity  markets  and  the  establishment  of 
European-wide  balancing platforms, the Commission may decide to amend the proposed Regulation in future. 
Regulation (EC) 714/2009 provides for an explicit right for stakeholders to propose amendments. 

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