business strategies in ancillary service markets

7/28/2019 Business Strategies in Ancillary Service Markets

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BUSINESS STRATEGIES

IN ANCILLARY SERVICEMARKETS

Asko Vuorinen


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Ancillary service markets

US FERC order 888 (1996)determined six ancillary services

Scheduling, system control and dispachingservices

Reactive supply and voltage control sevice

Regulation and frequence response service Energy imbalance service

Operating reserve-spinning reserve service

Operating reserve supplementary reserveservice


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Ancillary service (A/S) marketsPurpose

The given six ancillary services (A/S)shall be open to competition

System operator shall buy all the A/S

services needed from the A/S market The load service entities (LSE) can

generate their own ancillary servicesand/or sell or buy them from the A/Smarkets


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Ancillary service (A/S) marketsMain A/S markets

USA separate markets for1) Regulation reserve market

2) Spinning reserve (5 -10 min) market

3) Non-spinning reserve (10 min) market Europe

1)Secondary frequency control market

includes regulation, 10 minutespinning and 10 minute non-spinningreserve markets


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Regulation reserve market


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Regulation reserve marketPurpose

Manage energy balance in the powersystem within 5 to 15 minutes

Restore frequency response reserves

(primary frequency control) to beready for another disturbance

With open market the prices of

regulation reserves will be reasonable(competitive prices)


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Regulation reserve marketCosts of regulation

Power plants offer regulation atopportunity costs

Oc = Pe VcWhere

Oc = opportunity costs of electricity (=loss of profit , if the

output will be reduced)Pe = market price of electricity

Vc = variable costs of power generation


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Regulation reserve marketNet revenues from regulation

Power plant can make net revenues inthe regulation market if

Pr > Oc

Where

Pr = regulation price (/MW/h)

Oc = opportunity costs of electricity (/MW/h)


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Regulation reserve market

Market prices of regulation reserves inCalifornia

Prices of regulation reserves in California

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

90,0

1999 2000 2001 2002 2003 2004 2005 Aver

($/MW)

Reg Down

Reg Up


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Regulation reserve marketNet revenues from regulation

If the price of electricity Pe = 60 /MWh and variable

costs Vc = 50 /MWh then opportunity costs Oc = 10/MWh

If a power plant reduces its output from 100 MW to 70MW, it loses its opportunity costs (30 MW x 10 /MWh =

300 /h)

But if price of regulating power Pr = 20 /MW/h, theregulation revenues are 30 MW x 20 /MW/h = 600

The net revenues from regulation are then 600 /h 300/h = 300 /h


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Regulation reserve marketRegulation increases net revenues

Energy market only

1) Net revenues fromenergy market

= 100 MW x (60 50)/MWh = 1000 /h

Energy + regulation

1) Net revenues fromenergy market=

70 MW x (60-50)/MWh = 700 /h

2) Net revenues fromregulation = 30 MW x20 /MW/h = 600 /h

3) Total = 700 + 600 =1300 /h or + 30 %


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Regulation reserve marketSummary

Flexible power plant can increasetheir net revenues by operating in partload and selling regulation up/down

(+/-) power Increase of net revenues is the

difference between revenues from

regulation and loss from energy profits


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Spinning reserve market


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Spinning reserve marketPurpose

Restore regulation reserves (with non-spinning reserves) after a trip of thelargest unit within 5 or 10 minutes

Spinning or synchronized reserves actimmeditely by the rotating mass(inertia) of rotor and flywheel, when

frequency deviates from nominalvalue


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Spinning reserve marketGeneration of spinning reserves

Spinning reserve plant offer to increaseits output from Pmin to Pn

Typical internal combustion engine orgas turbine plant can operate constantly

at 40 % load (Pmin) and increase its

output to 100 % (Pn

) in 5 or 10 minutes


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Spinning reserve marketCosts of spinning reserves

Cspin = Pn x (Pe Vcn) Pp x (Pe Vcp)=

= Pn x Pe Pn x Vcn Pp x Pe + Pp x Vcp

Cspin/(Pn-Pp) = Pe Vcn x (1 Pp/Pn x Vcp/Vcn)/(1-Pp/Pn)

Where

Cspin = cost of spinning reserve

Pn = power output at full output

Pe = price of electricity

Vcn = variable costs at PnPp = power output at part load

Vcp = variable costs at part load


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Spinning reserve marketCosts of spinning reserves

Part load efficiency is important

If part load efficiency is low, then variable costs

at part load (Vcp) are higher than at nominalload (Vcn) and cost of producing spinningreserve (Cspin/(Pn-Pp)) will increase*

* see formula in slide 15


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Spinning reserve marketPrices of spinning reserves

Prices of operating reserves in California

0,05,0

10,0

15,0

20,0

25,0

30,035,0

40,0

45,0

50,0

1999 2000 2001 2002 2003 2004 2005 Aver

($/MW)

Spin

Non-Spin


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Spinning reserve marketNet revenues

If price of spinning reserve is Pspin(eg. 15 eur/MWh)

Then a power plant increase its netrevenues, if the difference of price ofelectricity and variable costs is less

than Pspin (15 eur/MWh)


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Spinning reserve marketSummary

Flexible power plants can increasetheir profit by operating in the partload and selling spinning reserves

Increase in net profits is the best if thepart load efficiency of the power plantremains high


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Non-spinning reserve

market


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Non-spinning reserve marketPurpose

Restore regulation reserves (withspinning reserves) after a trip of thelargest unit within 5 or 10 minutes

Non-spinning (unsynchronized)reserves act only after synchroni-sation*

* Synchronisation takes 1 3 minutes for diesel and gas enginesand 3 7 minutes for aero-derivative gas turbines


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Non-spinning reserve marketGeneration

Power plant will be in hot stanbymode and is not synchronised

Non-spinning reserves act only after

synchronisation*

* Synchronisation takes 1 3 minutes for diesel and gas engines

and 3 7 minutes for aero-derivative gas turbines


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Non-spinning reserve marketNet revenues

Nr = (Pnspin x Pn Csb) x tsbWhere

Nr = net revenues

Pnspin = price of non-spinning power (eur/MW/h)

Pn = Power output to be sold on nonspin (MW)

Csb = costs to keep the plant at hotstandby conditions (eur/h)

tsb = annual time at hot standby conditions (h)


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Non-spinning reserve marketNet revenues

If the price of non-spinning power will be

5 10 eur/kW/h in average

Then a 160 MW plant makes 800 1600eur extra revenues in one hour

The plant could then generate 5 10million euros annually!


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Non-spinning reserve marketSummary

If power plant can start up to full load in

ten minutes, it can increase its revenuesand sell non-spinning reserves

The increase in net revenues will be thedifference between the non-spinningrevenues and the costs of keeping the

plant in hot standby conditions


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Optimization of power plant

operation in A/S markets


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Optimization of the operation

Power plant owner

Owner tries to maximize his netrevenues by generating energy,regulating, spinning and non-spinning

reserves in an optimal mix He uses algorithms, which selects the

best operation mode for each of his

power plants


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Optimization of the operationAlgorithm to maximize of net revenues

1) Calculate net revenues if the plant generates only

energy at 100 % load2) Calculate net revenues, if the plant generates

energy at 70 % load and offers regulation (+/- 30%)

3) Calculate net revenues, if the plant operates at 40

% load and offers spinning (+60%)4) Calculate net revenues, if the plant is in hot

standby and offers non-spinning reserves (+100 %)

5) Select the one of the four operating modes, whichgives the highest net revenues

6) Go to point 1) until all hours have been evaluated


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Optimization of the operationTransmission system operator (TSO)

TSO should do the optimization oneday ahead for all power plants in thesystem at the same time

TSO should then determine, howenergy, regulation, spinning and non-spinning reserves shall be generated

during the next day


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Optimization of the operationOptimum operation of gas engine plant

Annual net revenues of a GE-160 gas plant

-20%

0%

20%

40%

60%

80%

100%

10 60 160 300 500 1000 1500 2000 3000 4000 5000 6000 7000 8000 8760

(h/a)

(1

0

0

0

)Non-spinning

Spinning

Regulation

Energy

Maximum net revenues are found in the base case, if the plant

produces 160 hours energy only, 1340 hours energy and regulation

and 7000 hours non-spinning power


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Optimization of the operationOptimum operation of diesel engine plant

Maximum net revenues are found in the base case, if the plant

produces 60 hours energy only, 140 hours energy and regulation and

8300 hours non-spinning power

Annual net revenues of DE-160 lfo plant

0%

10%

20%

30%

40%50%

60%

70%

80%

90%

100%

10 60 160 300 500 1000 1500 2000 3000 4000 5000 6000 7000 8000 8760

(h/a)

(1

00

0

)

Non-spinning

Spinning

Reg up/down

Energy


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Summary and conclusions

The new energy markets include alsoancillary services (A/S markets)

The optimization of operation of all powerplants should be made for energy and A/S

markets at the same time

The flexible peaking plant makes typically80 % of all net revenues in A/S markets and

only 20 % in A/S markets


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For details see reference text book

Planning of Optimal Power Systems

www.optimalpowersystems.com

Author:

Asko Vuorinen

Publisher:

Ekoenergo Oy

Printed:

2007 in Finland

Further details and

internet orders see:

business strategies in ancillary service markets

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