You wouldn’t plan a road trip without first checking for bottlenecks on your way to your destination. The European power grid operates on that same logic. It's a continental power highway that, just like the German Autobahn during Easter break, is experiencing high demand. To cover peaks in demand and keep frequency steady, grid operators are increasingly looking across borders to meet their flexibility needs. 

Moving power between nations, however, is more than a simple transaction, but a complicated calculation of road space. So before we can solve the puzzle of cross-border capacity, we have to look at the mechanics of the "traffic" itself: the European balancing system.

Managing grid volatility is an ever-present challenge for today’s Transmission System Operators (TSOs). As a dynamic multi-directional energy system emerges in Europe, operators rely on balancing services to exactly match supply with demand in near real time, and spotting congestion isn’t as easy as looking down the road on a webcam.

A two-stage procurement process helps TSOs ensure that adequate reserves are available and are activated when needed, while providing fair reimbursement for market participants. 

But with renewables providing a growing share of the energy mix, the demand for efficient balancing markets is mounting, and pooling of reserves across borders alleviates the strain. Meanwhile, the intraday and day-ahead markets compete with balancing markets for the same cross-border transmission capacity - the “lanes” on the highway. Deciding how much should be allocated to each is a critical equation. 

Understanding how the balancing system works is not only important for the TSOs themselves. Traders are increasingly turning to multi-market optimization that goes beyond day-ahead and intraday markets into balancing services. To truly "own" this market, they need to understand exactly how it works.  

In this three-part article, we’ll look at the different pieces of the European balancing system, how they fit together, and how they are adapting to a harmonized market, managing traffic to ensure secure, affordable, sustainable energy for Europe.

How do balancing markets maintain system stability?

Balancing services support TSOs managing increasingly volatile grids. TSOs use them to maintain stability if supply and demand become imbalanced and grid frequency drops or rises beyond operational limits.

In the ENTSO-E area, three balancing services work together across different timescales to provide short-term support. The Frequency Containment Reserve (FCR) is an automatic mechanism and kicks in within 30 seconds, with assets such as batteries, hydro plants or thermal generation activated to prevent further frequency deviations.

Within five minutes, the automatic Frequency Restoration Reserve (aFRR) comes up to full power to restore the balance. If the imbalance continues, the TSOs trigger the manual Frequency Restoration Reserve (mFRR), which comes online within 12.5 minutes to restore stability for a longer period. Some regions also add their own flavors.

Who provides balancing services?

Starting in the early 2000s, TSOs began sourcing balancing capacity and activating near-real-time balancing energy from Balancing Service Providers (BSPs) such as generators, storage, and increasingly, independent aggregators. For some time, this occurred only within their national borders using their own internal Market Management System (MMS), such as the ones we have delivered for the Hungarian TSO MAVIR and for Ukrenergo in Ukraine. This process is managed in two stages.

Balancing capacity markets are used to procure capacity ahead of time (originally a year or month in advance, but nowadays, in many markets, auctions occur the day before) to ensure it’s there if needed. A BSP commits to holding flexibility in reserve for a block of time (such as one or four hours) and is on standby to adjust output or consumption if required. The BSP is paid regardless of whether their capacity is actually triggered.

Balancing energy markets collect bids for balancing energy throughout the day until shortly before delivery. Providers who win the capacity auctions are obliged to submit bids for balancing energy, and other BSPs are also allowed to bid. Bids are ranked in a Merit Order List; when the frequency deviates and the TSO needs balancing energy to be activated, providers are selected and activation is triggered based on this list. Activated providers receive a balancing energy payment in addition to any capacity remuneration they may already earn from the reserve auction.

How does procurement of FCR differ?

Compared to aFRR and mFRR, FCR is a different beast, which greatly simplifies its procurement. 

First, since it must start within seconds, FCR is not triggered by the TSO. Rather, FCR starts automatically when the local frequency varies. Second, it is a highly symmetrical product. While aFRR and mFRR are separately procured for upward (increase output or decrease consumption) and downward (decrease output or increase consumption) services, FCR bids require the ability to regulate in both directions.

As a result, FCR is procured on a capacity basis only. There is no need for a market to trigger FCR activation, and the symmetrical nature means that the upward and downward regulations tend to cancel each other out over time, so the capacity payment alone must be sufficient. 

Finally, because the energy volumes needed for FCR are small and short-lived, explicit transmission capacity allocation is not required - you can think of these small, fleeting flows as motorbikes on the highway, able to flit around easily. The Reliability Margin (the small buffer TSOs keep on every line) is more than enough to soak up these minor, momentary flows.

Where do balancing markets fit in the EU’s integrated energy system?

Central to the EU’s energy strategy is a more integrated, harmonized energy system. This depends on both physical interconnections and coordinated energy markets. The Single Day-Ahead Coupling (SDAC) and Single Intra-Day Coupling (SIDC) wholesale markets have been highly successful and have been in operation for about a decade now.

Cross-border power market initiatives in Europe began with day-ahead and intraday trading, but the EU views balancing as critical to an interconnected energy system and is driving greater cross-border integration of balancing energy and capacity markets to improve efficiency and competition. 

Since it’s unlikely that multiple countries will need large amounts of balancing energy at the same time, regions across Europe are connecting national markets through cross-border initiatives, working together to secure balancing capacity more efficiently and optimize the activation of balancing energy while minimizing the need to add new power plants or other balancing resources. 

What role do PICASSO and MARI play?

ENTSO-E launched PICASSO in 2022 and MARI in 2024, giving TSOs a shared infrastructure to exchange balancing energy across borders. Now live across 17 and 13 countries respectively (as of Q2 2026), with more to follow, these platforms act as central traffic dispatchers, telling the “cars” when and where to go. They were developed to minimize cost and enhance grid stability, while enabling greater competition and the safe integration of a growing share of renewable generation. 

BSPs still submit bids to their national TSOs, which then forward them to PICASSO for aFRR balancing energy, and MARI for mFRR. Once a bid is selected via a Common Merit Order List, the acceptance is sent back to the TSO, which triggers activation from the BSP. Because the merit order spans multiple countries, the cheapest available balancing energy is activated first. This drives down procurement costs and increases competition among providers. At the same time, access to a larger and more diverse pool of balancing resources across borders makes it easier to absorb the variability of a growing share of renewable generation.

Together, PICASSO and MARI have transformed how balancing energy is activated across Europe. But securing that energy in advance - procuring balancing capacity across borders - is a harder problem, and one that is still being solved. In Part 2, we will look at the regional capacity platforms tackling that challenge and the critical question of how limited cross-border transmission capacity is shared among them.