THE AFRR

MARKET:
CAPACITY
AND
ENERGY
white paper
April 2024
 The aFRR market

What is the aFRR market?

aFRR stands for Automatic Frequency Restoration Reserve and consists of two
segments within the umbrella structure of ancillary services: the aFRR capacity market
and the aFRR energy market. It serves as the secondary reserve in the hierarchy of
frequency-balancing products and acts as a backup for FCR (Frequency Containment
Reserve). aFRR is an automated response mechanism, meaning the need for frequency
regulation in the positive or negative direction is indicated automatically by the TSO
(Transmission System Operator) based on real-time grid conditions.

Why do we distinguish between the aFRR energy and aFRR capacity market?

This question has a relatively straightforward answer. As we know, the aFRR reserve
provision opens multiple revenue streams: capacity and energy. For a simplified
perspective, think of the aFRR capacity market as theoretical, and of the aFRR energy
market as absolute. What does this mean? In the aFRR capacity market, the TSO pays
for the availability of capacity, while in the aFRR energy market, the TSO pays for the
actual delivery of capacity. As such, participants in the aFRR capacity market block the
capacity requested by the TSO and, if not activated, can make money without ever
having to physically supply the reserved capacity. It is important to note that reserved
capacity cannot be leveraged in other markets, even if it never gets activated.
Meanwhile, participants in the aFRR energy market are compensated for delivering
the volume requested by the TSO.

TSOs procure aFRR reserve capacity according to the results of their dimensioning
process. This aFRR capacity is typically contracted on a day-ahead basis, with different
product resolutions (4 hours vs. 24 hours), but there are also other approaches across
Europe. Once a balancing service provider is awarded a contract, they are obligated to
submit bids into the aFRR balancing energy market, with a volume at least equal to the
volume of the contracted capacity. Product resolution (hourly vs. 15 minutes) and gate
closure times can still differ within Europe, but once the PICASSO platform covers all
TSO areas, the market design will be identical: 15 minutes product resolution for aFRR
energy, 5 minutes FAT (full activation time), 25 minutes lead time till gate closure.

enspired · April 1 | 10
This means that each prequalified balancing service provider, with or without a
capacity contract has to, or can submit aFRR balancing energy bids 25 minutes before
the delivery period starts (e.g. until 12:05 for the delivery period of 12:30-12:45). Within
PICASSO, the TSOs forwards these bids to the central optimization function, which
creates a central merit order list (MOL) out of these bids and decides about activations
based on TSO needs and cross-border constraints. This process is essentially the same
for TSOs not yet participating in a common market, but the bids are localized.

The TSO starts activating the received bids according to the merit order and the actual
balancing requirements calculated by their system controller. If the merit order list
consists of 20 bids with a size of 1 MW each, ranging from 80-300€/MWh, and the
imbalance that must be corrected is 10 MWs, the TSO activates the first 10 bids, as this
is the most efficient way to tackle that imbalance. The aFRR energy market has a pay-
as-bid pricing mechanism, while the aFRR capacity market is typically pay-as-cleared,
meaning all accepted bids receive the highest price in the activation sequence. For a
quick internalization of aFRR revenue streams, the table below familiarizes you with the
features of both.

capacity energy

ensuring availability of sufficient capacity to delivery of reserved capacity based on real-

purpose cover aFRR demands and meet frequency time grid needs
quality requirements

divided into six 4-hour blocks per day
gate closes at CET 09:00 prior to delivery day
market structure
typically divided into ninety-six 15-minute
segments on the delivery day (PICASSO)
gate closes 25 minutes before each 15-minute
delivery period
FAT is 5-15 minutes depending on TSO

defined by duration and volume limits
unlimited availability must be guaranteed
product during the contracted period
batteries can participate with an approved
SoC management strategy
defined by activated volume, activation time,
and duration
activation according to the submitted energy
bid in case there is no pending capacity
contract for the same period

minimum bid 1 MW 1 MW

bid granularity 1 MW 1 MW

organized by connecting TSOs or common organized mostly by local markets

platforms
local rules and needs are reflected in the
dimensioning of the reserve capacity
procurement products
due to variable product structures, clearance
ranges between daily, weekly, and monthly
tenders, but daily is the most typical
common internal market PICASSO is already
up and running in Austria, Germany, and
Czechia; more countries will follow later in
2024
clears every 4 seconds

typically pay-as-bid typically pay-as-cleared but in some systems

calculated based on how much power is also pay-as-bid
remuneration being reserved calculated based on how much power is being
settled after classification of fulfillment delivered or requested
settled after classification of fulfillment

enspired · April 2 | 10
 PICASSO: the common
internal aFRR energy market
by ENTSO-E

Developed by the European Network of Transmission System Operators for

Electricity (ENTSO-E), PICASSO (Platform for the International Coordination of
Automated Frequency Restoration and Stable System Operation) is a centralized tool
for the coordination and activation of aFRR resources across Europe. It enables real-
time communication between grid operators and market participants to effectively
manage frequency regulation and maintain grid stability during events of system
disruption. At the time of writing, PICASSO has four operational members: Germany,
Austria, Czechia, and Italy. Most of the remaining European countries are expected to
follow later in 2024.

Source: entsoe.eu

enspired · April 3 | 10
FCR, aFRR & mFRR

What is the difference between FCR, aFRR, and mFRR?

Both aFRR and FCR provide response services to secure grid stability following
frequency deviations of different magnitudes and durations. As the primary response
mechanism, FCR offers rapid response to immediate disturbances. aFRR is the
secondary response mechanism and addresses longer-duration frequency deviations
with a slightly slower reaction time than FCR. The tertiary response mechanism, mFRR
(manual Frequency Restoration Reserve), is activated manually by the TSO when
primary and secondary reserves are unavailable or insufficient for the compensation of
grid fluctuations. Procurement of FCR, aFRR, and mFRR volumes happens in dedicated
auctions, through which the TSO buys capacity directly from market participants who
have these products on offer. It should also be noted that aFRR is a bi-directional
product, not symmetrical like FCR and mFRR. This means that aFRR market players
can submit diverging bids for upward and downward regulation, while FCR and mFRR
require even regulation in both directions. In other words, if you block 4 upward hours
for FCR, you must also block 4 downward hours.

Which assets are compatible with aFRR, and why should it be part of your business
strategy?

The power assets most suited for aFRR marketing are typically those with the ability to
align their power output and consumption flexibly and quickly in response to signals
from the grid operator. This includes demand response resources, virtual power plants
(VPPs), and various EES (energy storage systems), such as pumped storage and
batteries. Storage technologies are crucial components of the flexible supply chain, and
VPP aggregation allows a wide variety of flexible units to participate in different
flexibility and ancillary service markets. For these reasons, the market is developing
toward classifying flexibility as an asset itself. With the cross-market approach gaining
increasing importance for commercial asset optimization and revenue diversification,
aFRR inclusion is essential for securing financing and future-proofing business models.

What is the correlation between aFRR prices and renewable penetration?

It’s the same old story: The growing share of intermittent renewables in the electricity
mix makes the market volatile, driving imbalances and large fluctuations in the system,
and flexibility is needed to compensate for them. Increasing demand and stagnating or
even decreasing supply due to the phasing out of fossil fuels could cause aFRR prices
to go up as the price design depends heavily on the supply structure, the availability of
technology, and the cost of the technology. With the supply side of flexibility so
affected by the replacement of conventional assets, the aFRR market is getting more
notice from battery and non-traditional flexibility providers, leading to a narrowing gap
between FCR and aFRR prices. In due time, aFRR capacity markets have the potential
to outperform FCR revenue streams if a) the optimization strategy is designed as such
and b) TSO guidelines allow it.

enspired · April 4 | 10
 Crucial developments in the
aFRR market

In March 2024, German grid operators 50Hertz, Amprion, Tennet, and Transnet BW
published figures that showcase the relevance aFRR is gaining over FCR. Prequalified
FCR capacity in 2024 dropped by 35% to 4.5 GW compared to the previous year, while
prequalified aFRR capacity remained steady.

Prequalified FCR capacity in Germany by source, indicated in GW for the years 2017-2024. Source: regelleistung.net

Batteries are the only technology that exhibits an increase in FCR capacity, which
grew by 180 MW in 2024 and covers more than the total demand. This means that
batteries will have to move to other markets in order to counteract the
cannibalization effect in FCR.

Prequalified FCR battery storage capacity in Germany from 2017-2024. Source: regelleistung-online.de

enspired · April 5 | 10
Overall, the prequalified capacity for aFRR in 2024 does not exhibit major divergencies
from previous years. What has changed are the capacity sources. Prequalified battery
capacity rose from 60 MW to 330 MW – an even higher increase than FCR. These
findings highlight the decisive role battery storage plays in the continuous availability
and supply of balancing energy.

Prequalified aFRR capacity in Germany by source, indicated in GW for the years 2017-2024. Source: regelleistung.net

Prequalified aFRR battery storage capacity in Germany from 2017-2024. Source: regelleistung-online.de

enspired · April 6 | 10
Spend a day in the aFRR market with enspired
In light of the growing significance of aFRR, enspired launched a brand-new live dashboard to
accommodate this market environment. The demo shows a cross-market optimization (wholesale,
FCR, aFRR capacity, and aFRR energy) backtest for a 10 MW/20 MWh battery asset with a
maximum of 2 cycles per day on 30 March 2024 in Germany. We will now explain the most
important parameters for aFRR in detail.

enspired cross-market optimization dashboard

Trading results

What you see here are some first indicators of the entire trading activity, including the revenue made
with the asset. These numbers, of course, depend heavily on market conditions and can vary
significantly. Next to revenue, you see the benchmark the performance is measured against – in this
case, FCR-only compared to cross-market. Adjacent to this is the total number of trades that were
executed to achieve this result. Please note that this amount does not necessarily reflect actual
(dis)charges of the battery as most trades are not physically dispatched but strategically
repositioned. Here, you can learn more about different types of trades.

enspired cross-market dashboard trading overview

The first blue box in the bottom row breaks down the revenue by MW per hour. Next to that, you find
the CO2 savings the marketization enabled in tons. This number is derived from a certified
methodology that calculates emission savings based on the asset’s flexibility provision. The balancing
factor mirrors the ratio of traded MWhs to dispatched MWhs. In this example, 12.5 more MWhs were
traded than executed. Same as with revenue, this number varies a lot.

enspired · April 7 | 10
Dynamic power allocation

These next snapshots show the dynamic power allocation of the battery across the four markets.
From the lightest to the darkest shade of blue, it distinguishes between wholesale, FCR, aFRR
capacity, and aFRR energy. Throughout the delivery day, the residual part of the battery not
allocated to the capacity markets is continuously being reoptimized in the energy markets
(wholesales and aFRR energy) to achieve the highest revenue in the given market conditions. That
is why the appearance of this map is so diverse – our trading strategies consider all relevant factors
both from the market and the asset perspective.

enspired cross-market dashboard dynamic power allocation on different sample days

enspired · April 8 | 10
SoC and capacity allocation

When trading a battery asset, you always need to know its SoC (state of charge). The pink line
tracks the asset’s (dis)charging processes and depicts how much capacity the asset had available
at any point in time during the reference day. The monitoring reflects all events that impact the SoC.
The blue lines mark the lowest and highest thresholds the storage level should stay within. If you
look closely, you can also spot some less prominent white lines – these indicate the upper and lower
limits for wholesale capacity allocation.

Marketing a battery across all available revenue streams creates the golden balance between profit
generation and asset health. As we have learned, blocked capacity does not equal delivered
capacity, and this is where you gain your competitive edge. Playing multiple markets where some
offer remuneration for the availability of capacity instead of limiting yourself to one market that
constantly pushes your battery’s SoC to its limits keeps your profits high and your asset healthy.
Reoptimizing positions based on favorable market conditions allows you, for example, to sell
battery charges into wholesales and battery discharges into aFRR energy bids at the same time,
leaving the asset’s SoC levels largely unaffected.

enspired cross-market dashboard SoC and capacity allocation

BESS warranty terms

One of the most vital parts of battery optimization is adherence to the warranty terms, which are
specified by the manufacturer and taken into account in our dashboard. A full cycle equivalent
(FCE) is one complete charge and discharge of the storage asset. The battery unit in this example
has 2 cycles per day, meaning it can go through a full charge and discharge twice in one day. On
this particular trading day, the asset completed 1.6 cycles of the two it has available. The net
throughput indicates the MWs that physically flow through the battery during the (dis)charging
processes. In the bottom row, you can see that the throughputs for the individual markets add up to
a higher total than the net throughput. And this is exactly what we learned in the previous chapter.
Sometimes, the trading transactions cancel each other out, allowing for a higher tradable capacity
than what actually flows through the asset. The moving depth of discharge (DOD) indicates the
degree of discharge. In this case, the battery was, on average, discharged to 71.6%.

enspired cross-market dashboard warranty terms

enspired · April 9 | 10
The importance of forecasts
While wholesale and aFRR energy positions can be flexibly reoptimized on the
delivery day, the decision to participate in the aFRR capacity and FCR
markets requires more definitive planning a day in advance. High-quality
forecasts enable us to make a data-based estimation of the market
conditions so that capacity can be distributed across these four key markets
in an educated and informed manner. Moreover, being able to predict
marginal prices as accurately as possible helps with formulating reliable
bidding strategies for a pay-as-bid market environment like aFRR capacity.

Attaining future revenue reliability with aFRR

"High-quality forecasts are the enablers of flexibility
optimization in the aFRR markets. By subjecting these
positions to a routine of continuous reassessment, you
generate profits that remain inaccessible to those tied up
in homogenous marketing setups. Incorporating aFRR into
your trading strategy ensures grid resilience and
competitive superiority in a dynamic market environment,
where short-notice adaptability brings long-term success."

Jürgen Mayerhofer | CEO enspired

enspired · April 10 | 10
Are you ready to market your assets but feel unprepared to
get started? Or do you just want to avoid the hassles of running
your own modern intraday trading desk? Our team of experts in
AI-based energy trading takes care of it for you, getting you
started in no time with full transparency and no risk.

about enspired
enspired offers augmented Trading as a Service (TaaS) to enable clients to make the
most of their flexible and renewable assets on European short-term power markets.
These have evolved into fast-growing and volatile marketspaces that require heavy
usage of data, fully automated processes and models that can handle the involved
complexities. Our approach as a fully digital trading company allows us to utilize the
newest technology to trade without human intervention. The service is designed to
remove all hurdles and work jointly on commercially optimising assets to save
emissions and allow for a faster integration of renewables energy sources.

©enspired·2023

enspired GmbH
Wagenseilgasse 3
1120 Vienna, Austria
info@enspired-trading.com