Ancillary Services and Balancing in the Wholesale Market of Bosnia-Herzegovina

The proposed solutions for improving balancing services provision in BiH focus on four key areas: procurement of reserves, real-time balancing, metering and pricing of BRP imbalances, and financial settlement. Procurement of reserves is a critical component of balancing services, and the proposed solution involves the activation of balancing energy on the day of procurement. The merit order procurement of balancing sources is used to determine the most cost-effective sources of reserve energy. The secondary market is also used to facilitate the trading of reserve requirements between Balance Service Providers (BSPs). The procurement mechanism for secondary reserves involves the setting of reserve obligations by the System Operator (SERC) based on the ISO proposal. Each BSP's share of reserve requirements is equivalent to its share of the total BiH need, and the allocation is based on a portfolio basis. The reserve requirements are determined by SERC/ISO for three different time slots: peak hours on working days, off-peak hours on working days, and weekends and holidays. Pricing for secondary reserves is also an important aspect of the proposed solution. Producers receive a regulated payment for ancillary services, and the required incentive is a regulated price that is greater than or equal to the maximum of the capital cost and operation cost. The operation cost is the opportunity cost of not realizing gains from alternative use of power retained from reserve provision, or the must-run cost necessary for provision. The proposed solution also involves the creation of a secondary market for reserve requirements. This market allows BSPs to trade reserve requirements with each other, and the buying party is responsible for proper reserve provision. The reasons for participating in this market may include technical unavailability of own sources, economic disadvantages when providing from own sources, additional income from additional reserve provision, and enabling the shift of reserve provision from more to less expensive sources. In terms of pricing, the secondary market allows for free pricing among BSPs, which enhances their willingness to provide additional volumes and limits strategic behavior to rely on ISO as a "fall-back option." The clear incentive on BSPs to purchase missing volumes is that missing volumes will be bought by ISO at a price that is higher than the normal regulated price for secondary control reserves. BSPs will have to pay the cost of reserve purchase by the ISO, plus an additional penalty for failing to comply with their reserve obligations. The proposed solution also involves the activation of 2nd and 3rd control, as well as daily nomination of energy prices and daily balancing market. The regulation bands and secondary market are also used to facilitate the trading of reserve requirements. The financial settlement of reserve capacity and balancing energy is also an important aspect of the proposed solution, and the activated volumes and prices are used to determine the settlement. Overall, the proposed solutions for improving balancing services provision in BiH focus on creating a more efficient and effective market for ancillary services and balancing. The proposed solutions involve the creation of a secondary market for reserve requirements, the use of merit order procurement of balancing sources, and the determination of reserve requirements based on a portfolio basis. The pricing for secondary reserves is also an important aspect of the proposed solution, and the regulated price is determined based on the maximum of the capital cost and operation cost.