The First Price for Flexibility

A first look at what Germany's FCR order book reveals before the aFRR auction

Four auctions structure the German power market on the morning before delivery. The FCR capacity gate closes at 08:00. aFRR follows at 09:00, mFRR at 10:00 and day-ahead energy at 12:00.

That sequence should matter to anyone trading a flexible asset: Capacity awarded in FCR cannot simply be offered again one hour later. A trader therefore has to compare the expected value of bidding into FCR with the uncertain value of waiting for aFRR, mFRR or the energy markets. So the first auction should contain some information about how the market values flexibility.

If you are new to FCR, aFRR, mFRR, … here’s what you need to remember: FCR is symmetric and pay-as-cleared. All accepted capacity receives the marginal price. aFRR and mFRR capacity are directional and pay-as-bid, so accepted offers retain their individual prices. FCR has a single headline price. aFRR has an awarded price ladder rather than one equivalent clearing price.

An aside on the margins of FCR geography

Let’s start with a view of FCR-geography.

Germany buys FCR inside the wider FCR Cooperation. In our sample, a German bid appears at the marginal price-setting rung about 50% of the time. Switzerland is the most frequent alternative candidate at 21.0%, followed by Austria at 10.8%, Belgium at 9.3% and France at 8.8%.