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Who should pay for frequency-containment ancillary services? Making responsible units bear the cost to shape investment in generation and loads

Luis Badesa, Carlos Matamala, Goran Strbac

Abstract

While the operating cost of electricity grids based on thermal generation was largely driven by the cost of fuel, as renewable penetration increases, ancillary services represent an increasingly large proportion of the running costs. Electric frequency is an important magnitude in highly renewable grids, as it becomes more volatile and therefore the cost related to maintaining it within safe bounds has significantly increased. So far, costs for frequency-containment ancillary services have been socialised in most countries, but it has become relevant to rethink this regulatory arrangement. In this paper, we discuss the issue of cost allocation for these services, highlighting the need to evolve towards a causation-based regulatory framework. We argue that parties responsible for creating the need for ancillary services should bear these costs. However, this would imply an important change in electricity market policy, therefore it is necessary to understand the impact on current and future investments on generation, as well as on electricity tariffs. Here we provide a mostly qualitative analysis of this issue, defining guidelines for practical implementation and further study.

Who should pay for frequency-containment ancillary services? Making responsible units bear the cost to shape investment in generation and loads

Abstract

While the operating cost of electricity grids based on thermal generation was largely driven by the cost of fuel, as renewable penetration increases, ancillary services represent an increasingly large proportion of the running costs. Electric frequency is an important magnitude in highly renewable grids, as it becomes more volatile and therefore the cost related to maintaining it within safe bounds has significantly increased. So far, costs for frequency-containment ancillary services have been socialised in most countries, but it has become relevant to rethink this regulatory arrangement. In this paper, we discuss the issue of cost allocation for these services, highlighting the need to evolve towards a causation-based regulatory framework. We argue that parties responsible for creating the need for ancillary services should bear these costs. However, this would imply an important change in electricity market policy, therefore it is necessary to understand the impact on current and future investments on generation, as well as on electricity tariffs. Here we provide a mostly qualitative analysis of this issue, defining guidelines for practical implementation and further study.
Paper Structure (20 sections, 4 equations, 4 figures, 3 tables)

This paper contains 20 sections, 4 equations, 4 figures, 3 tables.

Table of Contents

  1. Introduction
  2. The challenge of frequency security in low- and zero-carbon electricity grids
  3. International experience on cost allocation of frequency-containment services
  4. Distributing costs of ancillary services among market players
  5. Why not keep socialising costs?
  6. How to allocate cost to different units?
  7. Why not use a probabilistic formulation?
  8. When to start applying this cost allocation?
  9. Why not force renewables to provide frequency support via a grid code?
  10. Illustrative test case
  11. Cost allocation rule
  12. On the need to partially penalise medium-sized plants
  13. Incentivising flexibility in large units
  14. Impact of cost allocation on business case of generating companies and large consumers
  15. Illustrative example: the British power system
  16. ...and 5 more sections

Figures (4)

  • Figure 1: Frequency excursions following the contingency (i.e., the sudden disconnection) of a generator in the power grid. The impact of inertia and contingency size is shown, for several cases representative of the British system.
  • Figure 2: Three-step procedure for cost allocation.
  • Figure 3: Sequential cost allocation in a three-unit system. All units are responsible for the first tranche of cost, all but the smallest unit for the second tranche, and just the largest unit for the last tranche.
  • Figure 4: Illustrative example of cost allocation for each generating unit, based on the Great Britain test case in CarlosAllocation.