A novel TSO settlement scheme for the Frequency Containment Reserve Cooperation in Europe’s integrated electricity market

Abstract

Frequency Containment Reserve (FCR) Cooperation is a European effort to integrate several countries in an integrated international electricity market platform for FCR procurement. In this market, Balancing Service Providers (BSPs) are on the supply side and Transmission System Operators (TSOs) on the demand side. This paper proposes a novel settlement scheme for sharing costs among TSOs; it proposes no changes to existing market clearing rules or to the existing settlement of the BSPs’ revenues. It is shown that the current TSO settlement scheme is an inequitable mechanism that originates negative costs for some TSOs in specific conditions, which are extensively discussed. The proposed TSO settlement scheme overcomes these inequities. In the proposed scheme, TSOs begin paying the local BSPs for the cleared bids needed locally, and the remaining imports are calculated in a subsequent step. Doing so avoids using the so-called “import/export costs”, which are demonstrated to be the source of the inequities in the current scheme. It is shown that if the proposed pricing scheme had been adopted from July 2019 to December 2022, all TSOs would have been affected. Specifically, the most negatively impacted TSO would have its accumulated costs increased by 16% and the most positively impacted TSO would have its accumulated cost decreased by 32%. The inequities of the current mechanism amount to more than 50 M€ or 7.4% of the total accumulated costs. Although the proposed mechanism is tested here under the FCR Cooperation, it can be applied to other markets where the rules allow different local settlement prices.