Settlement Design for Secondary Regulation Service: A Case Study of the Spanish aFRR Market

Abstract

The Spanish Secondary Regulation Service (SRS), launched in 2024, introduced a new settlement mechanism for automatic Frequency Restoration Reserve (aFRR) that significantly impacts the remuneration and compliance obligations of Balancing Service Providers (BSPs). This paper provides a comprehensive analysis of the SRS settlement model, detailing the calculation of marginal prices, accepted aFRR energy, and associated penalties for non-compliance. An illustrative example demonstrates the practical application of these concepts, highlighting discrepancies between delivered and accepted energy and their economic implications for BSPs. The results demonstrate that accurate bidding strategies and real-time monitoring are essential to maximize revenues and avoid penalties. Furthermore, the proposed framework is generalizable to any system operator implementing reserve markets, supporting harmonization efforts such as those promoted by the PICASSO project.