FCR market changes:Swiss, Dutch and French FCR markets decoupled most often

From 1 July 2019 the common auction of Frequency Control Reserve (FCR, also known as primary reserve), covering Germany, Austria, Switzerland, France, Belgium and the Netherlands, has significantly changed. The former process of weekly auctions has been replaced by daily auctions which run two days ahead of delivery. 

Local auctions have been integrated to a larger extent, resulting in a new algorithm that takes into account variables as the ‘core portion’ (or Kernanteil) and transport restrictions. The core portion is the amount of FCR that must be contracted domestically so as not to depend too heavily on cross-border connections. 

Finally the capacity payment went from a ‘paid-as-bid’ to a ‘paid-as-cleared’ system, where the marginal accepted bid sets the price for all bids. Markets decouple when core portion is not met or transport capacity has been exceeded.In this case local markets get a different price than the common auction result.

Below chart shows the boundaries for Switzerland, which has a surplus of FCR bids at moderateprices. Switzerland decoupled from the common auction on 20 days resulting in anaverage capacity price that was 16% lower at € 177,79whereas the average of common auction clearing priceswas€ 211,09.

The Netherlands decoupled for opposite reasons, a shortage of capacity accepted in the common auction. The average premium for Dutch FCR is about 8%. This is around half of the premium under previous auction rules. Below example show the situation on 17 July.

Switzerland and the Netherlands are the countries that decoupled most often during the first month of the new regulations, only France occasionally decoupledwhen a couple of CCGT plants were kept running over the weekend and renewables were high.

As a whole it looks like FCR capacity prices may have been slightly higher in July, but then again Europe suffered from a massive heat wave, making it hard to draw conclusions based on the first month of operations.

It does not look like there is a huge disconnect between the previous regime and the current daily auction scheme. It was to be expected that prices would fluctuate more than with weekly auctions as market parties are expected to take market circumstances into account.

Country differences

Bidding strategies seem to trust other market parties to produce marginal bids to a large extent. Around 440 to 640 MW of FCR is offered at ‘zero price’ in the auction. This is quite surprising as in the old regime prices of under € 4,27 per MW per hour (€102,48 per MW per day) were rarely seen and the maximum accepted (day equivalent) bid was € 193,92 in the last weekly auction of June.

By analyzing the anonymized bids, local differences in approach are clearly visible. Where bids from AT, DE, CH and NL seem to follow similar strategies, it is clear that French parties have a different approach. 

It looks like are a lot more eager to provide FCR at a low capacity price, or trust that the market will be benign towards them. Over two thirds of offered FCR capacity has been offered for ′free′ during the first month, accounting for around 90% of the zero-price offers.

From the shape of the curve it is also apparent that the number of participants in the common FCR auction from France and Belgium is very low. Belgian parties are not very active on the common FCR auctions, there is not that much flexible capacity available and Belgium contracts a significant part of its FCR requirement still via weekly auctions on its STAR platform.