ČEPS seeks exemption for procuring balancing services, aims to cut grid operating costs

The Energy Regulatory Office has published on its website an application by ČEPS, a.s., for an exemption from the obligation to procure the entire volume of balancing reserve on the day-ahead market, as required under the current wording of the regulation on the internal electricity market. ČEPS has requested the exemption due to current conditions in the electricity market, which do not sufficiently incentivise participation by balancing service providers, and due to uncertainty over the future operation of coal-fired power plants. The aim is also to reduce transmission system operating costs.

ČEPS, the transmission system operator in the Czech Republic, submitted an application this week for an exemption from the obligation to procure balancing services solely on the day-ahead market. Although this obligation is laid down by the 2019 European regulation on the internal electricity market, an exemption may be granted under specified conditions, allowing balancing services to be procured through long-term contracts as well (with a maximum duration of one year).

The transmission system operator applied for the same exemption in previous years. This year, however, it also justified the request by uncertainty over the future operation of coal-fired power plants. Their future has recently come under intense discussion in connection with a sharp decline in wholesale electricity prices.

According to coal plant operators, operating coal-fired power plants may cease to be economically viable within the next few years. The issue gained momentum after Sev.en Group owner Pavel Tykač warned that he would close his two power plants and two coal mines in northern Bohemia after the next heating season.

ČEPS has generally recorded lower offered volumes of balancing reserve, particularly for downward services, during periods of low wholesale electricity prices and high emission allowance prices. As ČEPS states in its application, when providing these services, most energy facilities must operate at a certain minimum output in order to be able to provide them. <Providers, however, often prefer to shut down energy facilities due to low wholesale electricity prices rather than operate them at a loss.

"Direct economic decision-making therefore prevails, and individual providers are in no way incentivised to keep their energy facilities in operation solely for the purpose of participating in the day-ahead market for balancing services," ČEPS states in its application for an exemption from the obligation to procure balancing services solely on the day-ahead market.

ČEPS aims to secure balancing services not exclusively on the day-ahead market, but also through long-term contracts of up to one year to the maximum permitted extent. If the Energy Regulatory Office grants ČEPS's application, tenders should take place as early as this summer, with contracts to be concluded for 2025.