Full Cost Balancing is a mechanism that addresses the demand and resulting costs for balancing reserves procurement, which is directly introduced because of imbalances. It elaborates the reasoning behind introducing such a polluter-pays zero sum game, shifting part of the financing of the balancing reserve from the system tariff to an imbalance fee. The fee will be based on the principles of fairness and cost reflection, i.e. that production and consumption units are responsible to not ‘pollute’ (equal to all other units), or, alternatively, financially responsible for the ‘pollution’. The principles apply, among others, to grid connection requirements, tariffs, and imbalances, etc.

In short, the topic is considered as the Nordic TSOs have developed an updated methodology for dimensioning of FRR (balancing reserves) as activation of balancing reserves is increasingly due to imbalances, which are deviations from scheduled consumption and production from energy markets, i.e. because of forecast errors and less due to forced outages. Besides, imbalances are expected to further increase correlated to the installed capacity of renewables, but also because of decentral flexible consumption.

The discussion paper also briefly discusses if a second principle concerning price elastic procurement of balancing reserves is to be introduced. Meaning that it is considered if the full dimensioned balancing capacity is to be procured or not, based on an assessment of marginal price and shadow costs (referring to the value created of the marginal MW procured, based on the change for the security of supply).

Full Cost Balancing will be presented and discussed in a workshop at Energinet the 7th of March, and we also encourage bilateral dialogue and discussions, as Energinet will advance with a methodology in the coming months.

Read more about the workshop: Aktørworkshop om nyt ubalanceprisdesign og ubalanceprisgebyr
The workshop will be physical in Erritsø and in danish.
If you want to participate in the workshop, reach out to Mathilde, moa@energinet.dk.
Extended deadline: Monday, 4th of Match