The growing challenge of sizing balancing reserves 

The stability of our electricity grid relies on Transmission System Operators (TSOs) maintaining a continuous equilibrium between power injections and withdrawals, a task known as System Balancing. As the energy transition accelerates, this core function is becoming more complex. TSOs across Europe are grappling with two primary challenges when determining exactly how much balancing capacity is required:

1. The evolution of the Reference Incident within the energy transition

Under the European System Operation Guideline (SOGL), TSOs are legally required to ensure that at least enough balancing capacity is available to withstand the Reference Incident of each Load Frequency Control (LFC) block at all times. The Reference Incident is defined as the largest active power imbalance that occurs during an unplanned outage of a generating module, load facility, or a critical AC or DC interconnector. 

Historically, calculating this risk was straightforward. The largest potential failure was tied to a fixed physical asset, such as a nuclear or thermal power plant, with a constant, highly predictable capacity.

Today, the Reference Incident has become dynamic and volatile, driven by two real-time factors: weather and market dispatch.

• Weather Dependency: The rapid integration of massive, variable renewable assets (such as offshore wind clusters) means that the potential volume of a sudden generation drop is constantly shifting with meteorological conditions.
• Market Dispatch: Commercial trading across borders dictates the power flows on HVDC interconnectors from hour to hour. The “worst-case scenario” loss on a line changes continuously based on market outcomes rather than static grid physics.
• Their Combined Impact on Other Assets. The net injection of large peak generators is impacted by both market and weather dependencies. Power production of large Combined Cycle Gas Turbines (CCGT), for instance, highly relies on the amount of net injection from renewables and interconnectors.  

TSOs can no longer rely on a single, fixed risk baseline. Identifying the grid element responsible for the Reference Incident and sizing the potential shock it could cause now requires advanced techniques.

2. The delicate interplay between market and grid operations

The sudden loss of a major infrastructure asset is only one piece of the puzzle. When sizing balancing reserves, TSOs must also account for everyday variations: wind and solar forecast errors, minor grid outages, and unexpected deviations by market participants from their schedules.

However, grid operators do not operate in a vacuum. Modern electricity markets are intentionally designed to incentivize market participants (Balance Responsible Parties or BRPs) to correct their own deviations before the TSO needs to intervene.

This creates a critical forecasting dilemma for both operators and regulators: How much flexibility will the market resolve on its own, and how much must the TSO procure as a formal safety net?

• The Future of Flexibility Needs: High-level outlooks like the IRENA (2026) report or the upcoming Flexibility Needs Assessments (FNAs) project massive increases in global flexibility capacity needs. However, a significant portion of this flexibility will be naturally deployed by the market without TSO intervention.

Figure 1. Projection of global capacity flexibility needs. Similar trends are observed for G20 and G7 country groups. Extracted from IRENA, Flexibility for a secure and affordable power sector transformation.

• The Diverging Trends in Flexibility and Reserve Needs: This distinction explains a vital trend highlighted in ENTSO-E’s European Resource Adequacy Assessment (2025). While raw system flexibility needs are skyrocketing, the actual growth rate of official Frequency Restoration Reserve (FRR) requirements in Europe over the next decade is projected to be much slower. The market is expected to absorb a large share of the volatility.

Figure 2. Projection of reserve requirements in Europe over the next ten years. Extracted from ENTSO-e, European Resource Adequacy Assessment 2025 .

How to estimate balancing capacity needs?

These trends show a clear evolution towards a more challenging reserve needs estimation. While some of the sizing requirements are laid by regulation, there are multiple methodologies to achieve such requirements. Often, there is a trade-off between reducing the risk of unmanageable system imbalances and ensuring sufficient procurement of cost-efficient capacity. 

In Europe, the Nordic TSOs follow a completely different sizing approach than the Baltic TSOs. Do you want to learn how different system operators tackle the reliability-cost dilemma and the pros and cons of their methodologies? Continue reading our next blog.