Implementation of the EU Mari & Picasso Directives - Impact on the German Control Energy Market.


published on 17th February 2022


The energy transition in Germany is currently one of the biggest climate policy challenges we are facing due to the decarbonization of the economy and society. The effects of the elimination of base-load capable coal and nuclear power plants on electricity prices and security of supply are being discussed almost daily and are increasingly calling the previous German market design of the „energy-only market” into question, as its steering effect of sufficient investment volumes in supply-securing power plants is being doubted.


The loss of installed capacity of large power plants is partly offset by the simultaneous „democratization” of the market for energy producers, especially by renewable energy producers. Large-scale generation capacity has been added in recent years, both in the commercial large-scale sector and in the residential sector through smaller PV systems. This has led to a sharp increase in the share of volatile power generators such as wind and photovoltaic plants and, in response, in the need for balancing power. The increased installation of large-scale and home battery storage systems that can now be observed is already serving to stabilize the power grid. Contrary to many critical voices, the actual security of supply in Germany remains at a very high level.


On an economic level, it can be assumed that the increasing volatility of electricity generation will also cause market prices to fluctuate more strongly than before between high and low prices.


Figure 1 illustrates the results of a study on what impact the increasing penetration of renewables in the electricity mix could have on future electricity price volatility by estimating the annual hourly number of so-called extreme prices in the EU per country and per year.



Number of positive/negative extreme prices per year on EU average   

Figure 1: Number of positive/negative extreme prices per year on EU average. Source: Own representation, according to Energy Brainpool.


Increasing supply volatility, but very low outage times - how does that fit together?

The reason for the very low supply interruptions for years is the system services performed by the transmission system operators (TSOs), which ensure the high reliability and security in power transmission and distribution to the existing extent. In addition to congestion management measures, which reconcile the supply and demand determination of the EEX wholesale exchange with the technical limitations of the grid on the day before the service is to be provided, these include, in particular, frequency maintenance measures to keep power generation and consumption exactly in balance at all times. If, due to schedule deviations, demand is greater than supply at a given time, the TSO must use positive control energy and thus inject more power into the grid through additional generation or curtail demand. In the opposite case, when supply is increased and demand is too low, the load from the grid must be increased or generation plants must be disconnected from the grid - this is called negative control energy. The provision of the different types of balancing energy is handled by three different balancing energy markets, which will change in the course of this year as a result of the European Electricity Balancing Guideline.


Structure of the German control energy market and costs of the current design

The balancing energy market in Germany is divided into different types of services, as described in more detail in the following table.



Different types of control energy and their properties have increased 

Table 1: Different types of control energy and their properties have increased.


The most responsive of all control types is the primary control reserve PRL (Frequency Containment Reserve, FCR), which is frequency-controlled and automatically activated at the location of the plant in order to regulate it up or down. Since July 1, 2020, the required PRL has been auctioned every four hours, and the required quantity is determined annually throughout Europe by the association of central European TSOs (ENTSOE-E). The PRL must be fully available within 30 seconds, so the plant must not be subject to any time-consuming ramp-up or ramp-down process. Furthermore, it is important that the provider of the PRL must offer positive as well as negative power at the same time. Due to the fast availability and the automatic call-up of the PRL, this is technically the most demanding, but also the most lucrative for plant operators. Particularly suitable plants are CHPs (from biogas plants), as well as battery storage and power-to-gas plants. Revenues to be obtained from PRL are significant and currently range from 154€/MW/day (on 15/01/2022) to 647€/MW/day (on 09/01/2022).


As table 1 shows, the secondary control power SRL (eng.: automatic Frequency Restoration Reserve, aFRR) and the minute or tertiary control power MRL (eng.: manual Frequency Restoration Reserve, mFRR) cover a later period of power provision. While the SRL automatically replaces the PRL, the MRL only replaces the previous control energy in the event of a prolonged imbalance between generation and consumption and is switched on manually by the TSO responsible for the control area. The reason for the stepwise sequence is the lower cost of MRL, which on the other hand is characterized by long delays in changing the load.


In the primary control reserve market, all bids are awarded until the amount of required control reserve tendered by ENTSOE-E is reached. The bidders of these bids receive their estimated capacity price - since the ratio of positive and negative PRL balances out on average, they do not receive an additional work price, unlike the bidders of SLR and MLR, whose auctions, incidentally, take place daily.


Accordingly, this complex system also has high costs, although these have been decreasing in recent years due to better integration of renewables and advancing digitalization and liberalization. In this context, years such as 2019 are out of line because market prices have risen here due to necessary short-term regulatory interventions.


Provision costs of the various types of balancing energy, from 2015-2020 

Figure 2: Provision costs of the various types of balancing energy, from 2015-2020. Source: Monitoring reports of the Federal Network Agency.



In addition, the average volume-weighted balancing price received by the control reserve provider in the event of a call also varies comparatively strongly. In particular, there is no discernible trend in Figure 3; instead, the balancing price remains at a high level.



Average volume-weighted balancing price, from 2015-2020 

Figure 3: Average volume-weighted balancing price, from 2015-2020. Source: Monitoring report of the Federal Network Agency (2022).


The European Electricity Balancing Guideline and its impact on the German balancing energy market

Although the Electricity Balancing Guideline was already adopted in November 2017, it is still very topical, as its time horizons are deliberately far-reaching - after all, it is about nothing less than the harmonization of essential components of the energy directives of the continental European EU member states, for which all European TSOs and their national regulatory authorities must agree on common protocols and rules, simply a common „energy industry language”. The long-term goal is the secure supply of clean, affordable energy to European citizens and businesses, for which a cohesive, pan-European grid with the same rules and obligations for all is the most important component. It has now become known that the European Commission is roughly following the classification of FCR, aFRR and mFRR described above for this purpose, in order to enable the cross-border procurement of balancing energy.


The directive now stipulates that further steps are to be taken by July 24 of this year. On this date, the European digital platforms „Picasso” (Platform for the International Coordination of Automated Frequency Restoration and Stable System Operation) and „Mari” (Manually Activated Reserves Initiative) are to be launched, on which control energy services are to be jointly auctioned, settled and monitored across borders in the future. Although some national TSOs are expected to join later, this will not apply to the four German TSOs. While „Picasso” will cover SRL bids, „Mari” will do the same for MRL. Thus, from this summer on, a common, European platform will finally exist for all three types of balancing energy, contributing to the EU's goal of creating a pan-European internal energy market. With this expansion, the responsibility, but also the power to shape the balancing energy markets will shift from the national TSOs and regulators to their European counterparts, ENTSOE-E and the European Agency for the Cooperation of Energy Regulators (ACER).


As the final market rules and further details are still being worked out, the assessment of the impact on the German market is only preliminary. It seems likely that due to the strong cooperation of the four German TSOs with their European partners in recent years, the rules will be based on the principles known here, which are also used in a similar form in Western Europe. Admittedly, the launch of the platforms will not yet result in a fully developed joint balancing energy market - but it lays an important foundation stone for one, whereby system services for grid stability - at least according to the plan - can be performed more cheaply in the future. In particular, cost reductions are expected as opposing control energy measures in two currently still separate market areas will become obsolete.


At the same time, the joint European tender will ultimately increase both the number of suppliers and the market area enormously, although of course international trading is only possible to a limited extent due to the limited transmission capacities. It will be interesting to see at which level the future market clearing price will settle.


Due to the significantly increasing demand for balancing energy compared to the current time, the market can become a lucrative market for many suppliers of generation facilities. This is interesting for players who have access to plants that are predestined for the provision of balancing power - e.g. operators of

  • battery storage systems
  • operators of power-to-gas plants
  • heating networks with larger electrical heat generators (e-boilers, heat pumps) or combined heat and power plants which are ideally coupled with a storage system.


Although the Control Energy Directive is just another building block on the way to a pan-European energy market and there is still a lot of work ahead for all stakeholders, it prepares Europe's energy supply for a future in which renewables are the backbone. The undoubtedly increasing demand for balancing power offers potential for value creation for many players in the energy market, or requires action when even large amounts of balancing power are needed (e.g. for e-charging stations). The problem is often part of the solution if flexibility and storage are considered from the beginning (e.g. bidirectional charging or multivalent heating networks).


It is certain that in times of high electricity market and balancing energy prices, the combination of low-cost volatile renewable generation plants in combination with flexible loads / generators or storage is an attractive way to achieve stable energy costs in the long term. Despite the increasing complexity of holistic renewable energy supply concepts, experience shows that it is better to start now than later.


Particularly in medium-sized industrial companies, for example, the realization must grow that they are part of the energy transition - this means on the one hand investing in decentralized generation, but ideally also always thinking about the control requirements and, if necessary, bringing the storage facilities to the market for refinancing.


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