NC DR insights for Flexibility Service Providers

What is the Network Code on Demand Response, again?

The Network Code on Demand Response (NC DR) is a key regulatory instrument for flexibility by the Agency for the Cooperation of Energy Regulators (ACER). Its Recommendation 01/2025 marks a transition from heterogeneous legacy practices toward a harmonised European framework. While implementation remains national, the NC DR introduces common principles that redefine how flexibility is validated, measured, and settled across the European Union.

What is the timeline for its implementation?

Following the entry into force of the Regulation, Member States have a 12-month window to establish national processes for developing terms and conditions for system operators, as outlined in Article 5(1). After the national processes are established, system operators are tasked within the subsequent 12-month period to submit detailed proposals for baselining methodologies under Article 14.

What role do baseline methods play?

The baseline is a fundamental pillar underpinning market participation and settlement. As defined in Article 2(4), the baseline serves as the necessary counterfactual reference to determine the electrical quantities that would have been consumed or produced without a flexibility activation.

The NC DR implementation timeline as detailed in a previous Magnus Energy Brief.

What could Flexibility Service Providers do?

Since FSPs have a justified interest in market-based balancing and local services, they are invited to engage in these consultative phases to ensure that national methodologies reflect the technical and economic realities of their portfolios.

What makes a good baseline method?

The ACER Recommendation outlines five mandatory criteria for baseline methods:

1. Auditability: Methods must be fully recalculable.
2. Integrity: They must effectively prevent abusive behavior and market manipulation.
3. Accuracy: They must be precise, accurate, and unbiased.
4. Systemic Neutrality: They must account for compensation and proven rebound effects.
5. Proportionality: They should utilise existing available data wherever possible.

The challenge for Flexibility Service Providers (FSPs) lies in the inherent tension between these requirements.

How does this relate to Flexibility Service Providers interests?

The commercial viability of a FSP’s portfolio depends on five strategic dimensions that affect the full realisation of market value:

• Settlement Velocity: Minimising the delay between service delivery and final financial settlement to improve working capital.
• Commercial Reconciliation: Establishing a Transfer of Energy (ToE) framework to ensure financial neutrality between parties and protect margins.
• Baseline Validity: Meeting the full suite of ACER criteria for an unbiased counterfactual to maximise flexibility value and avoid disputes.
• Technical Compliance: Ensuring non-repudiation of performance without ballooning CAPEX beyond the value of flexibility.
• Vertical Synchronisation: Coordinating TSO-DSO data exchange across sequential activations to stack revenues.

Which issues need to be resolved?

• How can neutrality be guaranteed when the NC DR defines the volume, but the Electricity Directive governs the price – creating a systemic settlement conflict?
• Why do different technologies require distinct baseline methods to meet ACER criteria and product requirements?
• Can an FSP truly scale across the EU when each Member State adopts a distinct regulatory posture towards the 5 strategic dimensions of market value?

Our experts Martin Roach and Ksenia Tolstrup are happy to explore these question with you. Don’t hesitate to reach out!

Zoom in on the NC DR

Download our Brief on the Network Code on Demand Response:

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