The balancing energy market plays a central role in the increasingly decentralized electricity supply based on renewable energies. This market ensures the stability of the electricity grid and guarantees that there is a balance between electricity generation and consumption at all times. But how exactly does the balancing energy market work and what challenges and opportunities does it present? In this article, we will shed light on the most important aspects of the balancing energy market and highlight its significance in the context of the energy transition.

The control energy market, also known as the balancing energy market, is a special part of the energy market that ensures that the electricity supply always remains in balance. It ensures that short-term fluctuations in electricity generation or consumption are responded to quickly and efficiently in order to guarantee grid stability. This is particularly important as the electricity grid must always be in balance—the amount of electricity generated must always match the amount of electricity consumed.

The electricity grids of most European countries on the mainland are interconnected and operate at a uniform grid frequency of 50 Hertz (Central Europe synchronous area). In order to keep the frequency stable at 50 Hertz, the grid feed-in (called “generation” in the image above) must correspond to the grid withdrawal (called “consumption” in the image above) at all times.

Source: https://www.regelleistung.net/en-us/General-info/What-is-balancing-energy

The balancing energy market works—like basic electricity trading on the exchange—via tenders in which transmission system operators (TSOs) buy balancing energy from providers such as power plants, battery storage facilities and large consumers. These providers offer their capacities at certain prices and the TSOs select the most cost-effective offers to ensure grid stability.

The merit order principle

The merit order effect (MOE)

The merit order effect describes the impact of the use of renewable energies on electricity prices in the market. It is an observable consequence of the merit order principle, particularly when a high proportion of renewable energy is fed into the grid. The increased feed-in of renewable energy shifts the merit order curve downwards. This means that more expensive fossil-fuel power plants, which have higher marginal costs, are no longer needed as often or at all to cover demand. This displacement of more expensive power plants by cheaper renewable energies leads to a reduction in the average electricity price on the market. The electricity price is determined by the most expensive power plant that is needed to meet current demand, and if this power plant is replaced by a cheaper one, the overall market price falls.

Another aspect of the merit order effect is the increased volatility of electricity prices. As renewable energies are weather-dependent, their availability can fluctuate greatly, which can lead to short-term price spikes if more expensive power plants are suddenly needed to meet demand that is not covered by renewable energies. Despite this volatility, the general trend shows that the increased use of renewable energy is lowering average electricity prices while reducing dependence on fossil fuels.

The capacity price in the balancing energy market, also known as the capacity price or standby price, is the remuneration that operators of balancing power plants (or other plants that can provide balancing energy) receive for making their capacity available to feed electricity into or withdraw electricity from the grid when required. This price is paid regardless of whether and how often the capacity is actually called up.

How the capacity price works:

• Tendering & bidding: operators of balancing power plants submit bids stating how much capacity they can provide and at what price.
• Award process: The TSOs review the bids and select the most favorable ones in order to secure the required balancing capacity.
• Remuneration: The selected providers receive the capacity price for providing their capacity, regardless of whether this capacity is actually called up.

In addition to the capacity price, there is also a working price, which is paid when the balancing energy is actually called up and fed into or withdrawn from the grid. The capacity price thus serves as an incentive for operators to make their capacities available for the balancing energy market and contributes to the stability of the electricity grid by ensuring that sufficient balancing energy is available.

The working price in the balancing energy market is the remuneration that operators of balancing power plants (or other plants that provide balancing energy) receive when they actually feed balancing energy into or withdraw it from the grid. In contrast to the capacity price, which is paid for the mere provision of capacity, the working price is only paid when the balancing energy is actually used.

How the energy price works:

1. Calling up balancing energy: if a deviation between generation and consumption occurs in the electricity grid, the TSOs request the required balancing energy from the operators of the corresponding plants.
2. Provision of power: The plants selected for the provision of balancing energy react accordingly and either feed power into the grid or withdraw power from the grid, depending on demand.
3. Remuneration: The operators receive the working price for the power actually supplied. This price is calculated per MWh (megawatt hour) of balancing energy paid.

Capacity price: This price ensures that sufficient capacity is available for balancing energy, regardless of whether it is actually needed or not.

Working price: This price is paid additionally when the capacity provided is actually used, i.e. when balancing energy is fed into or withdrawn from the grid.

The energy price thus ensures that the operators of balancing power plants are not only remunerated appropriately for the provision of capacity, but also for the actual supply of the energy required.

The integration of renewable energies, particularly wind and solar energy, poses new challenges for the balancing energy market. These energy sources are weather-dependent and do not generate electricity continuously, which leads to greater and more frequent fluctuations in the grid.

The following challenges are particularly relevant:

Despite these challenges, there are also numerous opportunities for innovation and further development in the balancing energy market:

The balancing energy market is a central component of modern energy supply and plays a crucial role in the integration of renewable energies. The provision of balancing energy ensures grid stability and reliable operation of the electricity grid. Despite the challenges associated with the energy transition, there are numerous opportunities for innovations and further developments that will make the balancing energy market fit for the future. With smart technologies, flexible storage solutions and new market mechanisms, the balancing energy market can provide the necessary flexibility and resilience to successfully shape the energy transition.◼