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Strategic Bidding in the Frequency-Containment Ancillary Services Market

Carlos Matamala, Goran Strbac

TL;DR

This paper develops a strategic primal-dual bi-level framework to analyze market power in the coupled energy and frequency-containment AS market, addressing non-convexities via a single-level penalty formulation and binary expansion. The methodology combines an upper-level profit-maximising strategic bidder with a lower-level frequency-containment UC (a MISOCP) and its SOCP dual, solving the resulting problem through a three-block procedure and a carefully chosen penalty weight $W$. Applying the model to Great Britain’s 2030 GB7 scenario, the study shows that strategic bidding can significantly raise profits, especially through AS bidding, with profit uplifts up to 165% and substantial shifts in AS pricing, signaling systemic regulatory risk in AS markets amid decarbonisation. The results highlight the need for market design and regulatory measures to prevent market power abuse in inertia and frequency-containment services while maintaining security during the energy transition. Future work will explore multi-player equilibria, additional AS assets, and broader market interactions using Equilibrium Problem with Equilibrium Constraints.

Abstract

The vast integration of non-synchronous renewable energy sources compromises power system stability, increasing vulnerability to frequency deviations due to the lack of inertia. Current efforts to decarbonise electricity grids while maintaining frequency security still rely on Ancillary Services (AS) provision, such as inertia and frequency response, from flexible synchronous generators, placing these type of units in an advantageous position in the AS market. However, in the ongoing transition to decarbonisation, not enough attention has been given to analysing market power in the frequency-containment AS market. This work presents a strategic bidding model designed to analyse market power in the coupled energy and frequency-containment AS market. Through a non-convex primal-dual bi-level formulation, we determine the interaction of a strategic market player with the rest of the market that behaves competitively. The case study is based on Great Britain in 2030, demonstrating the capacity of the strategic player to influence prices. While this impact is perceived in the energy market, it is particularly pronounced in the AS market.

Strategic Bidding in the Frequency-Containment Ancillary Services Market

TL;DR

This paper develops a strategic primal-dual bi-level framework to analyze market power in the coupled energy and frequency-containment AS market, addressing non-convexities via a single-level penalty formulation and binary expansion. The methodology combines an upper-level profit-maximising strategic bidder with a lower-level frequency-containment UC (a MISOCP) and its SOCP dual, solving the resulting problem through a three-block procedure and a carefully chosen penalty weight . Applying the model to Great Britain’s 2030 GB7 scenario, the study shows that strategic bidding can significantly raise profits, especially through AS bidding, with profit uplifts up to 165% and substantial shifts in AS pricing, signaling systemic regulatory risk in AS markets amid decarbonisation. The results highlight the need for market design and regulatory measures to prevent market power abuse in inertia and frequency-containment services while maintaining security during the energy transition. Future work will explore multi-player equilibria, additional AS assets, and broader market interactions using Equilibrium Problem with Equilibrium Constraints.

Abstract

The vast integration of non-synchronous renewable energy sources compromises power system stability, increasing vulnerability to frequency deviations due to the lack of inertia. Current efforts to decarbonise electricity grids while maintaining frequency security still rely on Ancillary Services (AS) provision, such as inertia and frequency response, from flexible synchronous generators, placing these type of units in an advantageous position in the AS market. However, in the ongoing transition to decarbonisation, not enough attention has been given to analysing market power in the frequency-containment AS market. This work presents a strategic bidding model designed to analyse market power in the coupled energy and frequency-containment AS market. Through a non-convex primal-dual bi-level formulation, we determine the interaction of a strategic market player with the rest of the market that behaves competitively. The case study is based on Great Britain in 2030, demonstrating the capacity of the strategic player to influence prices. While this impact is perceived in the energy market, it is particularly pronounced in the AS market.

Paper Structure

This paper contains 15 sections, 15 equations, 6 figures, 2 tables.

Table of Contents

  1. Introduction
  2. Modelling Approach
  3. Upper Level: Strategic Player Profits Maximisation
  4. Primal Lower Level: Frequency-Containment UC
  5. System-wide constraints
  6. Private constraints
  7. Dual Lower Level
  8. Single Level Primal-Dual Bi-Level Formulation
  9. Solution Methodology
  10. Case Study
  11. Competitive Behaviour in the Energy and the Frequency-Containment Ancillary Services Markets
  12. Strategic Behaviour in the Energy Market
  13. Strategic Behaviour in the Frequency-Containment Ancillary Services Market
  14. Strategic Behaviour in the Energy and the Frequency-Containment Ancillary Services Markets
  15. Conclusion

Figures (6)

  • Figure 1: Solution methodology diagram.
  • Figure 2: Demand and RES availability profiles.
  • Figure 3: Energy prices (top) and AS prices (bottom) under competitive behaviour in the energy and AS markets.
  • Figure 4: Energy prices (top), AS prices (middle), and bidding multipliers (bottom) under strategic behaviour in the energy market.
  • Figure 5: Energy prices (top), AS prices (middle), and bidding multipliers (bottom) under strategic behaviour in the AS market.
  • ...and 1 more figures