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A Survey of Frequency and Voltage Control Ancillary Services—Part II: Economic Features Yann G. Rebours, Student Member, IEEE, Daniel S. Kirschen, Fellow, IEEE, Marc Trotignon, and Sébastien Rossignol
Abstract—This two-part paper surveys the frequency and voltage control ancillary services in power systems from various parts of the world. In this second part, essential economic features that must be taken into account when designing markets for ancillary services are first discussed. The methods adopted in eight different systems (Australia, France, Germany, Great Britain, New Zealand, PJM, Spain, and Sweden) for trading frequency and voltage control ancillary services are then compared. Lastly, new indicators for comparing volumes and costs of ancillary services across systems are proposed and calculated for the systems included in this survey. The companion paper surveys the technical features of these ancillary services.
TABLE I SYSTEMS INCLUDED IN THE SURVEY OF ECONOMIC FEATURES
Index Terms—Ancillary services, cost, frequency control, market, reactive power, system services, voltage control, volume.
I. INTRODUCTION
I
N liberalized or deregulated electricity markets, the provision of the resources required for frequency and voltage control is separated from the trading of electrical energy. The companion to this paper [1] surveyed the technical characteristics of these ancillary services in 11 systems from different parts of the world. This paper analyzes the economic characteristics of the markets for these ancillary services in eight power systems. Table I lists these systems along with the abbreviation used in this paper to refer to each system, the name of the regulatory authority, the name of the transmission system operator (TSO), and a currency conversion factor that will be used to compare costs. The companion paper [1] focuses on systems within a same synchronous zone because possible technical differences are then comparable and interesting. However, the present paper surveys systems with different backgrounds in order to compare original market designs. The specific ancillary services considered in this paper are the primary frequency control (automatic and using a local signal), the secondary frequency control (automatic and using a signal sent by the TSO), the tertiary frequency control (manual and using a signal sent by the owner but not related to the balancing mechanism), the basic voltage control (included in the connecting conditions), and the enhanced voltage control (supplemental to the basic voltage control). A
Manuscript received April 6, 2006; revised August 9, 2006. This work was supported by Electricité de France (EDF). Paper no. TPWRS-00198-2006. Y. Rebours and D. Kirschen are with the University of Manchester, Manchester M60 1QD, U.K. (e-mail:
[email protected]; daniel.kirschen@ manchester.ac.uk). M. Trotignon and S. Rossignol are with EDF Research and Development, Clamart 92 141 Cedex, France (e-mail:
[email protected]; sebastien.
[email protected]). Digital Object Identifier 10.1109/TPWRS.2006.888965
detailed description of these services can be found in the companion paper [1]. Lastly, trading of ancillary services by users of the distribution network is beyond the scope of this survey. II. ECONOMIC FEATURES OF ANCILLARY SERVICES MARKETS As with any commodity, creating a market for ancillary services is a way of resolving the conflict between buyers and sellers to their mutual benefit. TSOs would like to obtain the resources they need to maintain the security of the system at minimum cost, while providers seek to maximize the profit they make from the sale of ancillary services. However, because ancillary services are not simple commodities, various forms of trading have been set up for frequency control [2], [3], [8]–[11] and voltage control [12]–[15]. This section discusses the important economic features of markets for ancillary services trading as well as the advantages and disadvantages of different approaches. It also summarizes the economic features of the eight ancillary services market included in this survey. A. Types of Procurement Methods Generally, the TSO is responsible for the procurement of all the ancillary services. However, in some systems, this responsibility is transferred to some users of the network. For instance, the load-serving entities (LSEs) of PJM have to procure some ancillary services in accordance with their estimated load [32]. Since this devolution does not fundamentally affect trading in ancillary services, this paper assumes for the sake of clarity that the TSO always procures the ancillary services. A TSO can acquire ancillary services through four procurement methods: compulsory provision, bilateral contracts, tendering, and spot market.
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TABLE II PROCUREMENT METHODS USED IN THE SURVEYED SYSTEMS
Compulsory provision means that a certain class of network users (typically large generators) is required as part of their connecting conditions to provide upon request from the TSO up to a certain amount of a given ancillary service. Compulsory provision is “fair” because all the users belonging to a certain class must provide the same absolute or relative amount of ancillary services. However, for the sake of fairness and transparency, the requirements for compulsory provision are often expressed in a manner that does not catch all the complexity of the issue. This simplification has two main consequences. First, the volume of ancillary services provided may exceed what is needed, imposing unnecessary costs on the providers. Second, compulsory provision does not necessarily minimize costs because potentially low cost providers are treated on the same basis as more expensive ones. When a TSO procures an ancillary service using bilateral contracts, it negotiates with each provider the quantity, quality, and price of the service to be provided. Such negotiations remove the two problems associated with compulsory provision because the TSO can buy only the amount it needs and can deal only with the cheaper providers. However, bilateral contracts have disadvantages. First, since their terms are usually not disclosed to third parties, this form of procurement lacks the transparency that is desirable when one of the parties is a monopoly (the TSO). Second, bilateral negotiations can be long, complex, and costly. Third, because of the high transaction cost of bilateral contracts, price and volume are often fixed for a long time. This will inevitably be detrimental to one of the parties if market conditions change. The third and fourth procurement methods involve the development of a tendering process or the creation of a spot market. Drawing a line between these two methods is not always easy. In this paper, the term spot market will be used to denote a market where standardized products with a short duration (i.e., one week or less) are exchanged. A tendering process involves less standardized products or products with a longer duration. Both methods enhance transparency and foster competition. On the down side, they have high data management costs and may facilitate the exercise of market power by some participants. Table II summarizes the procurement methods chosen for the different types of ancillary services in the systems included in this survey. As shown in [1], the services used for tertiary control not related to the balancing mechanism are numerous and differ significantly from system to system. Useful comparisons are therefore not possible, so these ancillary services have not been included in Table II. Primary frequency control is the
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ancillary service for which the widest choice of procurement methods exists. A compulsory provision for this service has the advantage of fulfilling an intrinsically homogeneous geographical repartition. Secondary frequency control is never compulsory, and only France uses bilateral contracts. Indeed, Sweden and Great Britain do not use this service, while other countries rely on more competitive procurement methods. By definition, the basic voltage control service is always compulsory. Bilateral contracts and tendering are the preferred trading methods for enhanced voltage control. No spot market for basic or enhanced voltage control has been put in place yet because these services are very local and therefore highly susceptible to the exercise of market power. B. Types of Remuneration Methods Ancillary services can be non-remunerated, or paid according to one of three types of price: a regulated price (RP), a pay as bid price (PBP), or a common clearing price (CCP). While a non-remunerated system is very convenient for the TSO, it is unlikely to be economically optimal because the costs that the providers incur end up bundled in the price of other products such as electrical energy. By definition, a regulated price is set by the regulator or the TSO and is usually the same for all providers. This form of remuneration is particularly justified when market power is an issue. In general, however, a regulated price is not desirable as it reflects very imperfectly the actual cost of providing an ancillary service, particularly when this cost changes with time or circumstances. In a pay as bid system, the supplier receives the price of its accepted offer. This type of remuneration method is suitable when the quality of the ancillary services offered is highly differentiated and those offers are thus not easily comparable. However, a pay as bid price does not give providers an incentive to bid their marginal cost, except when market concentration is low [2]. In a common clearing price system, all the successful providers are paid the price of the most expensive accepted or the least expensive rejected offer. This form of pricing gives real incentives to suppliers to offer their marginal cost. On the other hand, it is not adapted to differentiated products because all the offers have to be comparable. Another issue is the definition of the perimeter of the market. For instance, because frequency control services help maintain the frequency of the whole network, their value is not geographically dependent. Zonal prices therefore may be preferred for these services. However, defining the zone remains a problem. On the other hand, because the effect and the value of voltage control services are very localized, nodal prices may be favored for these services. Table III shows the types of remuneration methods currently in use in the systems included in this survey. PJM and Spain are the only systems where primary frequency control is not remunerated. When this service is remunerated, a pay as bid policy is preferred because it is a differentiated product [1]. Secondary frequency control services are remunerated in all the systems that use it. Since secondary frequency control is managed directly by the TSO and use energy, it is quite obviously a service
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TABLE III REMUNERATION METHODS USED IN THE SURVEYED SYSTEMS
TABLE IV REMUNERATION STRUCTURES USED IN THE SURVEYED SYSTEMS
availability remunerations are favored for basic and enhanced voltage controls. Except in Great Britain, New Zealand, and Spain, the actual use of reactive power through the voltage control is not remunerated, so the utilization cost of reactive power does not seems to be considered as significant. Voltage control is not remunerated at all in Sweden. The active power used when generators work in synchronous compensator mode is remunerated in Australia, France, PJM, and Spain. Opportunity costs are not widely used, probably because they are more difficult to compute, and they may be included in availability payments when a long period is considered (e.g., a week or more). D. Other Economic Features
that providers deliver to the TSO and should therefore be remunerated. For basic voltage control, there is as yet no consensus on whether this service should or should not be remunerated. Finally, pay as bid is the preferred option for enhanced voltage control where this service is defined. C. Structures of Remuneration The remuneration for an ancillary service may combine several components that are intended to reflect the various costs that a provider of ancillary services may incur. These components include a fixed allowance, an availability price, a utilization payment, a utilization frequency price, and a compensation for a possible opportunity cost. The fixed allowance and the availability price remunerate the fixed costs that a provider incurs to make a certain amount of service available. On the other hand, the utilization payment remunerates the actual delivery of the service. A utilization frequency payment is based on the number of calls to provide a service over a given period of time and reflects the extra costs that may be incurred each time the service is called upon. The opportunity cost represents the profit that the provider would have made if it had sold other products (e.g., energy) instead of supplying the service. Table IV shows the remuneration structures in the systems included in this survey. For primary frequency control, an availability payment is in most cases the only type of remuneration because it operates continuously and the additional amount of energy it requires is negligible. The opportunity cost is not considered either, whereas the primary frequency control may incur such a cost. In three of the six systems that use secondary frequency control, both availability and utilization are remunerated. However, energy savings obtained when the output of a generator is reduced are subtracted from the additional energy used when this generator increases its output. Fixed and
This subsection discusses other economic features of markets for ancillary services. 1) Duration of the Contracts: As soon as a long-term contract (e.g., several years) is in place, there is no more competition until it comes up for renewal. This can be either a drawback or an advantage for the TSO if the contract is, respectively, worse or better than the other offers on the market. Short-term contracts (e.g., five minutes) increase competition but also risks. 2) Frequency of Review of Needs: By reviewing on a frequent basis the amount of ancillary services that it needs, a TSO can ensure that it only purchases what it really needs to maintain security. This parameter should be considered separately from the duration of the contracts because the available resources can vary during the day, even if the needs are constant. 3) Price Cap: It can be used to mitigate the effect of market power. A purchase cap is the maximum offer price that the TSO can buy, whereas an offer cap is the maximum offer price that a supplier can propose. However, since ancillary services markets are linked to other electricity markets, the consequences of imposing price caps should be considered carefully [2], [3]. 4) Market Concentration: It is usually measured using indicators such as the Herfindahl–Hirschman Index (HHI) or the Residual Supply Index (RSI) [5], but these indicators have only an indirect link with the potential for abuse of market power. This survey shows that markets for voltage control suffer from high market concentrations. On the other hand, markets for primary and secondary frequency controls are generally less concentrated because participants located anywhere can provide this service as long as transmission capacities are sufficient. However, primary frequency control has to be uniformly spread around the network and technical requirements are more demanding for primary frequency control than for secondary frequency control [1], so more units are able to participate in this last market. 5) Co-Optimization: It considers different products together (energy and ancillary services) in order to minimize the overall cost for the consumers. For example, co-optimizing energy and frequency control ancillary services is more efficient than clearing these markets separately [2], [3]. Unfortunately, such a co-optimization is not always possible, especially when a pool structure is not chosen for trading energy. In a decentralized market, producers usually co-optimize individually their production.
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TABLE V CHARACTERISTICS OF THE MARKETS FOR PRIMARY FREQUENCY CONTROL ANCILLARY SERVICE
E. Synopsis Per Service To allow a comparison across the eight systems studied, Tables V–IX compare the economic features for each service. 1) Primary Frequency Control Ancillary Service: Table V summarizes the characteristics of the ancillary service markets for primary frequency control. PJM and Spain are not represented in this table because this service is compulsory and not remunerated in these systems. Volumes of primary frequency control service are not reviewed often (from every month to every year), except in systems where a spot market has been implemented (Australia and New Zealand). A consensus on the frequency at which this market should clear has obviously not been reached because it currently varies from every five minutes (Australia) to every two or three years (France). In October 2005, Great Britain put in place the most complex structure of remuneration. A window is the period during which the supplier effectively provides the service to the TSO. In New Zealand, when a disturbance occurs in the power system, the party responsible pays an event charge, determined annually by the TSO. This charge is then redistributed between the participants in the control [29]. Australia is the only system where a price cap is enforced. PBP is much more common than CCP, even in New Zealand, where a spot market has been implemented. Lastly, New Zealand is the only surveyed system where the market characteristics for positive and negative primary frequency control reserves are different. 2) Secondary Frequency Control Ancillary Service: Table VI shows the characteristics of the market for secondary frequency control ancillary service chosen across systems studied. Great
Britain and Sweden are not represented in this table because this service does not exist in these systems. In PJM, the requirements for secondary frequency control are redirected to the LSEs, which can use their own units (selfscheduling), enter in contracts with other producers (bilateral contracts), or buy services on the spot market. PJM availability is expressed in $/MWh instead of $/MW because the frequency secondary control is provided during one hour and in order to be consistent with the energy price for computing the opportunity cost. Australia and PJM have chosen to implement a price cap but in two different ways: a purchase cap for Australia and an offer cap for PJM. Lastly, a common clearing price is always used when a spot market is implemented. 3) Tertiary Frequency Control Ancillary Not Related to the Balancing Mechanism: Table VII shows the characteristics of the markets for tertiary frequency control not related to the balancing mechanism. Australia, France, New Zealand, and Spain do not use this ancillary service and therefore are not represented in this table. Except PJM, all the systems that procure this service use bilateral contracts or tendering processes. PJM spinning reserve is defined as the capacity that is synchronized to the network and available within ten minutes [32]. PJM splits its spinning reserve in two parts. The Tier 1 spinning reserve is provided “naturally” by part-loaded generators following the unit commitment and dispatch. Therefore, this service is not remunerated, except when it is used. The Tier 2 spinning reserve is provided by reducing the output of some units or by committing new generators. Hence, this supplemental reserve is not economically justified by the production of energy and has to be remunerated accordingly and separately.
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TABLE VI CHARACTERISTICS OF THE MARKETS FOR SECONDARY FREQUENCY CONTROL ANCILLARY SERVICE
TABLE VII CHARACTERISTICS OF THE MARKETS FOR TERTIARY FREQUENCY CONTROL ANCILLARY SERVICE NOT RELATED TO THE BALANCING MECHANISM
4) Basic Voltage Control Ancillary Service: Table VIII summarizes the characteristics of the markets for the basic voltage control ancillary service. Australia, Germany, Spain, and Sweden are not represented in this table because this service is compulsory and not remunerated in these systems. Primary voltage control (local and automatic) is compulsory in France, but secondary voltage control (centralized and automatic) is not [1]. Therefore, payment depends on the type of
control used (primary only or primary and secondary). Moreover, the type of unit and the zone considered (zone with voltage issues or not) are also taken into account. In PJM, the basic voltage control remuneration depends on the generation company [34]. Payments for opportunity costs are very rare and are done on a case-by-case basis. Lastly, the British remuneration is based on capability breakpoints that divide the P-Q diagram of the units in different slices, each of which is paid accordingly.
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TABLE VIII CHARACTERISTICS OF THE MARKETS FOR BASIC VOLTAGE CONTROL ANCILLARY SERVICE
TABLE IX CHARACTERISTICS OF THE MARKETS FOR ENHANCED VOLTAGE CONTROL ANCILLARY SERVICE
5) Enhanced Voltage Control Ancillary Service: Table IX summarizes the characteristics of the markets for enhanced voltage control. New Zealand, PJM, and Sweden are not represented in this table because they do not use this service. A generator in synchronous condenser mode has its prime mover declutched and behaves like a synchronous compensator and therefore does not produce any active power. In this case, the utilization term designates the active power consumption (MWh) and not the reactive power production (Mvarh). Some systems separate absorption and production prices while other systems have a unique price for both modes. The first approach is probably more accurate as constraints on the synchronous machine are different in the two modes. III. QUANTITATIVE COMPARISON OF MARKETS FOR ANCILLARY SERVICES It may be useful for TSOs, regulators, and service providers to be able to benchmark their own markets for ancillary services against others and over time. By raising questions and thus initiating debates amongst participants, such a benchmark may im-
prove the efficiency of markets and enhance the transparency of TSOs’ activities. This section proposes two indicators that can be used for this purpose. These indicators are related to various properties of the market, such as market design, generation mix, or local security policy. A. Volume Indicators The volumes of ancillary services procured in other systems concern both TSOs and providers. Indeed, with such data, TSOs can figure whether they could save money by reducing the volume of ancillary services that they obtain, while providers can check whether they could envisage selling more ancillary services to their TSO. To compare volumes, system specificities and especially the size of the power system need to be taken into account. Therefore, a specific indicator, called reserve indicator (RI), is calculated by dividing the amount of reserve in the system by the hourly average energy production or consumption (in MWh/h), depending on the type of reserve. Hence, the TSO of a system with a high RI procures more reserves per unit of energy produced or consumed than one
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Fig. 1. Frequency control reserve indicators in 2004-2005 across systems surveyed.
with a lower indicator. One advantage of this indicator is that it can be calculated easily on the basis of parameters that are easy to obtain. While the concept of reserve indicator could also be applied to reactive power services, not enough information is available on reactive power volumes to include a reactive reserve indicator in this survey. Usually, the amount of primary control reserve is linked to the production. For example, the UCTE contribution coefficients for primary control are based on the annual production of each system [4]. Therefore, the reserve indicator used for the primary (in %) is obtained by dividing the average prireserve mary frequency control reserve (in MW) by the hourly (in MWh/h), as follows: energy production (1) In most systems, the secondary control reserve is linked to the estimated peak consumption during a given period. Therefore, the reserve indicator used for the secondary reserve (in %) is obtained as follows: (2) where (in MW) is the average secondary frequency control reserve and (in MWh/h) the hourly energy consumption. Fig. 1 shows the primary and secondary frequency control reserve indicators calculated in 2004 or 2005, depending on data availability, for the systems included in this survey. For the sake of clarity, primary and secondary RIs are not separated in this graph. However, in order to explain differences, primary and secondary frequency control RI will be discussed separately.
Except in Australia, the primary reserve indicator is higher in small systems with no interconnections or limited interconnection capacity such as Great Britain, New Zealand, and Sweden. Indeed, the primary frequency control reserve is sized to counteract the loss of the biggest unit, which is about the same in all the synchronous zones. Within the UCTE, Spain has a higher primary frequency control RI because of its compulsory policy. The values of this indicator for Germany and France are similar. Finally, systems outside the UCTE have a nonsymmetrical primary frequency control reserve (positive different from negwas not calculated because, conative), and PJM’s trary to the secondary frequency control, there is no specific requirement for the volume of primary frequency control reserve yet [6]. Germany has a high secondary frequency control RI because of the adopted pluralistic structure [1]. Indeed, each of the four German TSOs must be able to compensate for any realistic imbalance within its control area. Therefore, the total of reserves represents a large amount for Germany as a whole. New Zealand, PJM, and France seem to have similar policies in terms of secondary control volume. Spain has a higher because the Spanish TSO uses an extended N-1 criterion (loss of the largest group and the largest line). Note that its reserves are not symmetrical, contrary to the two other countries of the UCTE studied (France and Germany). Australia has relatively small amounts of secondary control reserves, because they are mainly used there to control the synchronous time. Lastly, New Zealand is split into two islands connected by a dc link, so frequency control RIs have been calculated for each island separately. B. Cost Indicators ) that can be used for The proposed cost indicator (CI or any ancillary service is calculated as follows: (3) where (in /year) is the annual ancillary service cost, and (in /year) is the annual wholesale energy cost. is obtained by multiplying the average wholesale market price in by the energy consumption of the country the same year as in 2003 [7]. The wholesale energy cost is taken instead of the cost for end users in order to avoid price distortion due to taxes or specific agreements. Fig. 2 shows the cost indicators for primary frequency, secondary frequency, and voltage control ancillary services for the systems considered in this survey. The cost indicators for primary frequency control are fairly similar across all systems. This CI is comprised between 0.5 and 0.7% of the energy cost, except in Australia where it is 0.35%. This can be explained by a low price and a low negative reserve volume. Because of the lack of data on the new British market for ancillary services, the average cost of the pre-October 2005 system is used. Secondary frequency control costs are rather high in Spain (more than 4% of the energy cost). Indeed, the TSO bought large volume at high prices in 2005 [37]. These high prices may be explained by the drought that affected Spain during that year. The French cost indicator is one of the lowest (0.5%), mainly
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ACKNOWLEDGMENT The authors would like to thank J. Apfelbeck, C. Bäck, N. Janssens, T. Kokkelink, T. Meister, B. Prestat, and R. Vice for their contributions. However, all errors, omissions, and inaccuracies remain the sole responsibility of the authors.
REFERENCES
Fig. 2. Ancillary services cost indicators across systems surveyed in 20042005.
because of a volume that is more optimized than the average. Cost incurred in Germany, PJM, and New Zealand are equivalent (from 1 to 2%). Lastly, the Australian cost indicator is the lowest because the amount of secondary frequency control reserve is very low. Australia is the country with the highest voltage control cost. New Zealand cost is very low, even if the basic voltage control is remunerated, probably because of the large proportion of cheap hydro units. PJM and France have a similar and an intermediate position, while Great Britain is among the cheapest. Lastly, since the Swedish TSO does not remunerate voltage control, no cost indicator can be calculated. IV. CONCLUSION This paper has reviewed the important economic features of frequency and voltage control ancillary services. No consensus has yet been reached on the details of the market for any ancillary service. However, some common features have been identified. Primary frequency control is a differentiated product, so pay as bid policies are preferred. Secondary frequency control is always remunerated and is often traded using a spot market. No spot market has yet been implemented for voltage control. Furthermore, this service is always at least partly compulsory. No clear trend between remunerated and non-remunerated policies for compulsory voltage control can be drawn. Lastly, frequency control ancillary services are generally remunerated with a capacity and a utilization payment. Voltage control ancillary services are usually remunerated using fixed and availability payments. Payments for opportunity cost or the frequency of calls are rarely used. Two indicators have been proposed to compare the volumes and costs of ancillary services. Smaller systems tend to have higher volumes of frequency control ancillary services because the size of the largest units is generally independent of the size of the system. The costs of ancillary services vary widely between countries (from 0.5 to 5% of the cost of energy), depending mainly on the technology used to provide the ancillary service and the policy of the system operator.
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Yann G. Rebours (S’06) received the electrical engineer’s degree from the Ecole Supérieure d’Electricité, Paris, France, and the master’s degree in electrical engineering from the University of Wollongong, Wollongong, Australia, in 2004. He is currently pursuing the Ph.D. degree at the University of Manchester, Manchester, U.K.
Daniel S. Kirschen (M’86–SM’92–F’07) received the electrical and mechanical engineer’s degree from the Université Libre de Bruxelles, Bruxelles, Belgium, in 1979 and the master’s and Ph.D. degrees from the University of Wisconsin-Madison in 1980 and 1985, respectively. Between 1985 and 1994, he worked for Control Data Corporation, Empros Systems International, and Siemens Energy and Automation. He is currently a Professor of electrical energy systems at the University of Manchester, Manchester, U.K.
Marc Trotignon received the graduated engineer degree in 1979 from the Ecole Centrale, Paris, France. He is currently Project Manager at EDF Research and Development, Clamart, France, coordinating several research projects dealing with regulation and market design. He has previously worked on power system dynamics, reliability issues, and interconnection. His main areas of interest are at the crossroads of economic, technical, and legal matters and concern some of the questions the power industry has to tackle in its new competitive organization: resource adequacy policies, interaction with environmental constraints, management of network congestion, and procurement and pricing of ancillary services.
Sébastien Rossignol received the engineering degree from the Ecole Supérieure d’Electricité, Paris, France, in 2001. He is currently a Research Engineer and Project Manager at EDF Research and Development, Clamart, France, in the power systems dynamics and grid connections group. He is in charge of studies in the field of ancillary services and dynamic stability studies.
