Coordinating Market-Based and Rules-Based Flexibility under NC DR

The Network Code on Demand Response sets a clear hierarchy between the two ways a DSO acquires third-party flexibility: market-based procurement is the default (Art. 29 §2), and rules-based flexible connection agreements (FCAs — the Swedish Villkorade Avtal) are recognized as a backstop, constrained by three binding rules in NC DR Art. 31. Coordinating the two is not a question of whether both are allowed — both are — but of designing the rules-based product so it does not collide with the market it sits beside. This page maps the coordination challenges and the design fixes that make the two compatible.

The two instruments rest on different EU articles. The obligation to offer FCAs at all comes from Directive (EU) 2024/1711, Art. 6a (the EMD Reform amending directive to the base Electricity Market Directive 2019/944), transposed in Sweden via Prop. 2025/26:16 (ellag 4 kap. 4a §, in force 2026-01-01; EU transposition deadline for Art. 6a was 17 January 2025) (Source - Prop. 2025-26-16 Forbattrad utformning av EUs elmarknad (2025), Source - Electricity Market Design Reform Directive (EU 2024-1711)). The market-coordination requirements come from NC DR Art. 31. Do not conflate the two Art. 31s referenced in the wiki — Directive 2024/1711 Art. 6a creates the FCA framework; NC DR Art. 31 governs how it coordinates with markets.

Why coordination is hard

FCAs and LFMs are complementary by design — FCAs give the DSO operational certainty (a committed right to curtail), LFMs give economic efficiency (competitive pricing, resource diversity). But both act on the same resources and the same grid constraints at the same DSOs, so a poorly designed FCA can make market participation impossible in practice even where it is formally permitted. The Comillas/BeFlexible interaction analysis (Flexible Connection Agreements) identifies the FCA↔LFM pair as the one with the most conflicts, including two outright incompatible (“red”) combinations plus a context-dependent (“orange”) one:

• Ex-post curtailment notification + day-ahead LFM (red) — if customers learn of curtailment only after the fact, they cannot bid into day-ahead markets; the Comillas paper treats this as blocking LFM participation. (The wiki’s reading: a resource that has already sold in the market and is then curtailed is double-activated.)
• Emergency activation + LFM contract lengths from daily to yearly (red) — no time for well-informed market decision-making; the combination is infeasible.
• LIFO access principle (orange, context-dependent) — uncertainty over who will be curtailed complicates reliable LFM bidding.

This is acute for Sweden because villkorade avtal are currently primarily congestion- and emergency-triggered with no uniform notification timing across DSOs, and Sweden has ~170 heterogeneous DSOs, most without any Ei-approved villkorade avtal method.

What NC DR Art. 31 locks in

Three things are structurally fixed for Sweden before any national Ei regulation is written (Source - NC DR Amended Text (ACER Recommendation 01-2025 Annex 1)):

Art. 31.3 is the crux: it guarantees the right on paper, but the right is only real if the FCA’s notification timing, access principle, and compensation structure are compatible with market participation. Emergency-trigger FCAs with ex-post notification undermine the right in practice even where the DSO formally honors it.

How to make them compatible — five design fixes

Compatibility is a timing-and-design problem, not a rights problem. The five fixes below resolve the red/orange interactions:

1. Move notification upstream of the market gate. The single most important fix. If curtailment is notified day-ahead, before the LFM / day-ahead gate closure, the customer knows their availability when they bid — no double activation. A plausible Swedish mechanism (the wiki’s inference; Ei2025:01 currently allows advance warning but places the formal activation decision at gate closure) is Ei prescribing a binding notification-timing floor (day-ahead gate closure as minimum) in EIFS, rather than leaving it to per-DSO method approval.

2. Use predictable access principles, not LIFO. Pro-rata or auction-based access — or permanent FCAs with known/seasonal curtailment calendars — let a provider plan market availability around known windows. LIFO leaves the provider unable to know whether they will be called, so they cannot bid reliably.

3. Sequence market-first, FCA-as-backstop. Procure on the market first; activate villkorade avtal only if market procurement is insufficient. This is the E.ON SWITCH model, and the structural way to avoid double activation — the FCA never fires on a resource already committed in the market for the same event. Ei2025:01 already requires that all market-based alternatives be exhausted before activation; NC DR Art. 31.2(a) requires coordination with available local-service products through a mechanism in the procurement rules, without itself prescribing market-first sequencing. (Source - Ei Ställningstagande Ei2025-01 Villkorade avtal (2025))

4. Keep compensation clean to avoid double-rewarding. FCAs with no compensation payment interact safely with almost any market or tariff design (no financial transaction overlaps). Where compensation exists, design it so the customer is not paid twice for the same MW — e.g., the FCA governs only the “guaranteed-off” portion while the market handles the rest. Every compensation-bearing FCA should be reviewed against each active tariff and market for double-rewarding (Source - DSO Service Acquisition Interaction Comillas (2024)).

5. Align asset direction. If the FCA and LFM both call for the same action (e.g., both want downward consumption / upward generation), they ask for the same thing and are compatible as long as activation timing and compensation do not overlap. Conflicts arise when they pull opposite directions.

What remains open in Sweden

The coordination rules are not resolved by the ACER Annex 1 text — they are delegated to national terms & conditions, which Ei must develop. The most likely outcome is EIFS that set binding framework rules (notification-timing floor for LFM coordination; activation-as-last-resort; the Art. 31 coordination mechanism) while leaving trigger thresholds and compensation to per-DSO method approval, consistent with how Ei has regulated LFM products. (Source - Ei Ställningstagande Ei2025-01 Villkorade avtal (2025))

Related pages

• Network Code on Demand Response — Arts. 29–39 (local services markets), Art. 31 (FCA coordination)
• Flexible Connection Agreements — the red/orange/green FCA↔LFM interaction matrix; design dimensions
• Villkorade Avtal — the Swedish rules-based implementation
• TSO-DSO Coordination — The Central Design Problem — the resource-sharing mirror of this page (grid prequalification, value stacking)
• Flexibility Market — local services markets and how they interact with the backstop
• Ei — the national T&C and EIFS development process