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- Key market changes in Belgium
- Comparing expectations: Netherlands vs. Belgium
- A European standard with local nuances
On November 26, 2024, Belgium’s Transmission System Operator (TSO), Elia, will join the European cross-border balancing platform PICASSO. This step aligns Belgium with the EU’s broader efforts to harmonize balancing markets, enhancing the coordination of automatic Frequency Restoration Reserve (aFRR) activations across borders.
The Netherlands joined PICASSO earlier this year, offering insights into potential market impacts. Belgium’s transition, however, comes with distinct local features and expectations.
Key market changes in Belgium
Exchange limits and price import risks
Elia has set a temporary exchange limit of 500 MW for cross-border aFRR activations and 250 MW specifically for the Belgium-Germany interconnector. These limits reduce the risk of importing high prices from other countries.
Elastic aFRR demand implementation
A critical factor to watch will be how Elia applies elastic aFRR demand pricing. The most recent update on this topic comes from the Rules for the Compensation of the Quarter-Hourly Imbalances document (July 9, 2024), in which Art. 12 p. 5 states:
Elia reports the prices of the elastic aFRR demand to the aFRR-Platform; these prices of the elastic aFRR demand correspond to €1,000/MWh for positive aFRR demands and -€1,000/MWh for negative aFRR demands.
This can be interpreted to mean that the prices will be capped at these levels, and this interpretation will be key to understanding their role as a ‘shield’ against extreme bid ladder imports.
Average price effects
On average, imbalance prices in Belgium are expected to decrease. The reliance on cheaper aFRR bids from neighboring countries like the Netherlands and Germany will likely eliminate the frequent negative imbalance prices of -€400 to -€600 currently seen during slight grid overcapacity.
Shift to pay-as-cleared for aFRR
The move from pay-as-bid to pay-as-cleared for aFRR remuneration marks a significant shift in Belgium’s balancing market design. Under the pay-as-cleared mechanism, all activated aFRR bids will receive the same price, determined by the marginal bid necessary to meet demand. This contrasts with the pay-as-bid model, where bidders receive the price they offer.
This change simplifies bidding strategies for market participants, as they no longer need to perfectly predict the marginal clearing price in order to maximize their revenues. Instead, participants can focus on submitting competitive bids reflective of their actual costs, fostering a more efficient and transparent market. Over time, this mechanism is expected to encourage greater liquidity and competition in the domestic merit order, driving down overall costs while maintaining system reliability.
Good to know is that in Belgium, marginal pricing will occur on a 4-second optimization cycle, similar to Germany’s approach. This stands in contrast to the Netherlands, where the marginal price from each 4-second cycle determines the clearing price for supplying aFRR over the entire 15-minute period.
Technical preparedness with Elia’s API
Elia has proactively updated its data API, which provides near real-time information on imbalance prices, volumes, and other critical metrics. These adjustments were made earlier this year to align with PICASSO’s requirements, ensuring a seamless transition for market participants. By standardizing data formats and incorporating PICASSO-specific changes, Elia hopes to minimize the risk of disruptions, allowing stakeholders to adapt their systems in advance and maintain operational efficiency.
Comparing expectations: Netherlands vs. Belgium
When the Netherlands joined PICASSO earlier this year, expectations centered around a dampening effect on imbalance prices due to access to larger cross-border balancing reserves. This proved largely accurate, with fewer extreme price fluctuations and overall stabilization of balancing costs.
For Belgium, the anticipated impacts share similarities but also feature distinct nuances. Temporary exchange limits and elastic aFRR demand, for example, are expected to shield Belgium from some of the more extreme price dynamics seen in larger markets like Germany.
A European standard with local nuances
While PICASSO sets the stage for harmonization of the aFRR market across Europe, the experiences of countries like Belgium and the Netherlands demonstrate that national nuances still shape its implementation. Whether it’s Belgium’s temporary exchange limits or the Netherlands’ focus on preserving domestic price signals, each country balances the platform’s standardization goals with local priorities and challenges.
As more TSOs join PICASSO, it will be fascinating to observe how these regional adaptations influence the platform’s performance and how the European balancing market evolves as a result.