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  • Magnus Hausken

A closer look at the Swedish mFRR capacity market

Tuesday 17th September was the first daily auction for the national Swedish mFRR capacity market (CM)[1]. For Optimeering this was an exciting milestone, adding a new capacity market to the list of markets already using our clearing and pricing algorithms. As of Q2 2024, the Danish and Norwegian national mFRR CM, the Nordic aFRR CM and the Nordic FCR CMs all use Optimeering’s clearing and pricing algorithms to select bids, reserve cross-zonal-capacity (CZC) and set prices.

This blog post will give a brief summary of selected volumes, trades and prices seen in the market over the period 18th September 2023 to 9th April 2024.

Procurement schedule for Swedish mFRR capacity

The procurement (reserve requirement) of mFRR capacity for Sweden is predetermined and published on Svenska kraftnät’s (Svk) website[1] for each quarter. This is similar to how the reserve requirement is set in the Nordic aFRR capacity market, but different to the how it is set in the FCR capacity markets where some products have a reserve requirement that will vary based on a reference incident value. From an algorithmic point of view, it’s worth mentioning that the reserve requirements in the capacity markets are inelastic. This means that the requirement must be met at all costs, which is different to the price-dependent demand in the day-ahead-market. The only case where the requirements are not met is where it is physically impossible to do so (for example, there is not enough offered capacity in the market).

Svk does not buy mFRR capacity for all hours. For Monday to Friday, they procure up reserves in hours 7-22 and down reserves in hours 1-6 and 23-24. Saturdays and Sundays, up reserves are procured in hours 19-20 and down reserves in hours 1-15 and 21-24.

For the hours where Svk procure capacity, the levels are the same for all hours, but the hourly level has and will increase. Since September 2023, the hourly reserve requirements for both up and down products have increased each quarter. From 200MW in Q4 2023 to 300MW in Q1 2024 and a further increase to 400MW for up and 600MW for down in Q2 2024. The split by bidding zone is shown below.

The long-term plan published by Svk[1] is to increase the procurement even further to 800MW for both up and down by 2026.

Procured mFRR capacity

Since 18th October 2023, the procured capacity in Sweden for up and down reserves has been heavily dominated by market players in SE1, SE2 and SE3 as shown in the charts below.

Up mFRR/Down mFRR

Bids selected from these three bidding zones represent almost 100% (up) and 90% (down) capacity procured. We also see that SE3 has the highest share of selected up bids and that SE2 has the highest share of down bids in this period. Our algorithm selects bids based on a minimization of total bid costs and is constrained mainly by the CZC (cross zonal capacity) on each border. Since the CZC’s are relatively high between the Swedish bidding zones compared to the reserve requirements, the low procured volumes for SE4 in the graphs above indicate that bids in SE4 are typically priced higher than those in the other bidding zones, and/or that the number and volume of bids in SE4 are low (and most probably a combination).  

For Q4 2023, Svk were able to meet its reserve requirements for all hours except two on the 30th of December for up capacity. In Q1 2024 when reserve requirements were increased from 200 MW/h to 300 MW/h, Svk only failed to meet requirements for one hour (7th February for up capacity). In Q2 2024 however, Svk has had 16 hours (14% of all hours) were procured capacity was lower than the 400MW requirement, and 15 hours (15% of all hours) for the 600MW down requirements. The numbers for Q2 are extreme compared to the previous quarters and it will be interesting to see when and how this causes any market (price) response, and any subsequent supply-side response - and in particular, if it results in any increase in the volumes offered in this market.

Due to the possibility of the market players sending in complex mFRR bids (all-or-nothing bids, minimum volume requirements and block bids) some over procurement will occur from time to time. Svk has over-procured in 19% of the hours since 18th September for up capacity and 7% for down capacity. However, the average over procurement for these hours is not high, 1.5MW for up and 2 MW for down. The total cost of this over procurement has been 130 EUR per day on average.

Trade between bidding zones

In the two maps starting from the left below (UP and DOWN trade) we show hourly average trade of up and down mFRR between Sweden’s bidding zones. The actual reservation shown in the map to the right is the average over all hours of the function:

We see that SE3 is providing mFRR up regulation to SE4 (average 29 MW per hour) and the two northern bidding zones (average per hour of 12 MW) and has an average net position of 39MW (exporter). For mFRR down, SE2 is providing a large part, ‘sending’ to both SE1 and the two southern bidding zones (a net of 26MW on average). In terms of the actual reserving of CZC, the borders SE1->SE2, SE3->SE2 and SE3-SE4 in both directions have the highest average MW reservations ranging between 13-15MW on average per hour. As SE4 does not have a lot of locally accepted mFRR up/down capacity, the SE3-SE4 line is reserved in both directions.


Prices in the mFRR market are based on marginal pricing principles. The pricing algorithm is set up to minimize total payout with a condition that all selected bids are in-the-money (all selected bids should at least recover their bid cost) and that prices in importing regions should always be greater than or equal to the price in the exporting region. In addition, if the capacity or cost of reserving on a line is not binding (i.e. the line is not congested), bidding zones on each side of that border will have the same price.

The volume weighted price per day for up and down mFRR capacity in Sweden is shown in the figure below.

naive forecast

It is interesting to note that increasing the reserve requirements from 200MW to 300MW per hour at the start of 2024 did not seem to have a significant effect on prices. However, the Q2 2024 increase in reserve requirements for down capacity from 400MW to 600MW per hour raised the general mFRR down price level in Sweden.

Prices for each bidding zone and up and down products are presented in the table below.

We see that the price for mFRR up is generally higher than the mFRR down price. We also see that there is a small difference between the two northern bidding zones compared to the two southern bidding zones. Price differences will occur if there are bottlenecks on the lines connecting two bidding zones. Bottlenecks will occur if the capacity or the cost of reserving on the line is limiting trade. Since 18th October, 8% of the hours have been congested on the line SE2->SE3 for up regulation and about 2% of the hours have been congested for down regulation. Apart from these hours, the connections between the Swedish bidding zones have been uncongested and prices equal across Sweden.

A trilateral mFRR capacity market

So, what is next for the Swedish mFRR capacity market? The recent price jump for mFRR down capacity after increasing the reserve requirement to 600MW shows that there is a need for more market players and volumes to be involved. As already mentioned, the long-term procurement schedule indicates a further increase in need for mFRR capacity in Sweden which makes this an interesting market to follow.

What is also worth mentioning is that in February this year, Energinet, Fingrid and Svenska kraftnät sent methodologies for a trilateral mFRR capacity market to public consultation. They have mutually agreed to propose a common market for the exchange and procurement of mFRR balancing capacity and the roadmap indicates a start-up of this market in 2025. It will be exciting to see how this will impact market participation, liquidity and market results.

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