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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: