UNIT-V

ANCILLARY SERVICE MANAGEMENT

Syllabus:
Introduction – Functions – Classification – Load generation balancing related services: Frequency
regulation – Spinning reserve services – Voltage control and reactive power support devices -
Sources of reactive power and their comparison - Issues – Black start capability service - How to
obtain ancillary service – Co-optimization of energy and reserve services.

1. INTRODUCTION

Most of the issues and corresponding debates in deregulated power industry pertain to the socio-
economical aspects of the system and the welfare of the society at large. However, the power
system infrastructure and the physical laws that govern its utilization continue to be the same, be
it vertically integrated utility or the restructured industry. Similarly, the activities of the system
operator pertaining to operation and control of the system existed during vertically integrated era
and continue to exist in the restructured era. These activities basically stem from the
responsibility of the system operator to keep the system in synchronism and operate it reliably. In
the restructured environment, these activities are typically known as ancillary services .

Provision of ancillary services under the deregulated environment is not as straight forward as it is
described in the vertically integrated structure. Though many reasons can be figured out, the
main reason is that the entities providing ancillary services may not be under direct control of the
system operator. This issue is highlighted with following two examples. The generators in the
competitive market are scheduled as per the bids provided by them to the market. A power
system that has generation just enough to support the overall load and losses is still a vulnerable
system. The system should have provision for additional generation during contingencies like
generator outages. Total capacity of some generating units can be partly dispatched for energy
and partly kept ready for reserve. For a particular privately owned generating unit with fast ramp
rate, the system operator is likely to schedule most of its capacity as a reserve. The generator,
however, may not agree to this unless and until some compensation is provided to it for
maintaining its capacity as a reserve. Thus, the development of compensation mechanism for this
generator, as well as the cost allocation to customers in an optimal fashion, poses a challenging
problem in the restructured environment.

Imagine another situation where, a particular generator is operating on the boundary of its
capability curve. An action demanded by the system operator to increase the reactive power
injection for this generator requires decrease in real power injection. This action, though essential
from the system security perspective, is against the market decision and again, the generator
may not agree to do so without proper compensation. Both these situations do not create much
problem in the vertically integrated structure because, under that regime, the generating units are
directly under the control of system operator, who also is a part of the vertically integrated utility.

A power system would continue to run in synchronism or be stable, unless and until it is
perturbed. However, a practical power system having thousands of elements like transmission
lines, transformers, switchgear, shunt elements, generators, etc., is certainly prone to
disturbances. The system operator has to keep all state variables within the practical limits under
normal as well as under contingent situation. Moreover, it has to achieve the global load-
generation balance at all times. Thus, even though the power industry has been deregulated, the
technical activity of control and operation remains the same. However, the manner in which some
of the facilities are procured or provided by the system operator may change, depending upon the
type of control.

In the vertically integrated era, whole of the resources required to take corrective control actions
are under the control of a single utility. This is not the case under competitive environment. Some
of the resources required for control of the system belong to other entities. Thus, they are not
mandated to act as per the directives of the system operator, unless and until a commercial
agreement exists between them. Thus, these are the services which are required to be purchased
by the system operator on commercial terms. As is apparent, the main commodity that is traded
in the power market is the electrical power or the electrical energy. However, to make the
transactions of power exchange or some other trading platform to be feasible, with security and
quality, some supporting services are required, which are nothing but the ancillary services. The
word ancillary stems from the fact that they support the main activity of the market, i.e., trading
of electrical energy or power. However, since the stability and security is at stake without these
services, they certainly have a primary role to play.

Ancillary services are defined as all those activities on the interconnected grid that are necessary
to support the transmission of power while maintaining reliable operation and ensuring the
required degree of quality and safety. It becomes clear that the ancillary services may include
scheduling and dispatch, frequency regulation, voltage control, generation reserves, etc. It is the
matter of debate and market design about how to procure these ancillary services. There are
some services which can be provided competitively and some services which come under the
direct control of the system operator.

2. Types of Ancillary Services

A large number of activities on the interconnected grid can be termed as ancillary services. During the
process of defining the ancillary services, some proposals tried to define 60 different ancillary services!
In order to remove this large discrepancy, the North American Electric Reliability Council (NREC) along
with Electric Power Research Institute (EPRI) has identified 12 functions as ancillary services. These
are:

1. Regulation: The use of generation or load to maintain minute-to-minute generation-load balance

within the control area.
2. Load Following: This service refers to load-generation balance towards end of a scheduling
period.
3. Energy Imbalance: The use of generation to meet the hour-to-hour and daily variations in load.
4. Operating Reserve (Spinning): The provision of unloaded generating capacity that is
synchronized to the grid and can immediately respond to correct for generation-load imbalances,
caused by generation and /or transmission outages and that is fully available for several minutes.
5. Operating Reserve (Supplemental): The provision of generating capacity and curtailable load
to correct for generation-load imbalances, caused by generation and /or transmission outages,
and that is fully available for several minutes. However, unlike spinning reserves, supplemental
reserve is not required to respond immediately.
6. Backup Supply: This service consists of supply guarantee contracted by generators with other
generators or with electrical systems, to ensure they are able to supply their consumers in case of
scheduled or unscheduled unavailability.
7. System Control: This activity can be compared with the functions of the brain in the human
body. System control is all about control area operator functions that schedule generation and
transactions and control generation in real time to maintain generation load balance.
8. Dynamic Scheduling: It includes real-time metering, tele-metering along with computer
software and hardware to virtually transfer some or all of generator’s output or a customer’s load
from one control area to another.
9. Reactive Power and Voltage Control Support: The injection or absorption of reactive power
from generators or capacitors to maintain system voltages within required ranges.
10. Real Power Transmission Losses: This service is necessary to compensate for the difference
existing between energy supplied to the network by the generator and the energy taken from the
network by the consumer.
11. Network Stability Services from Generation Sources: Maintenance and use of special
equipment (e.g., PSS, dynamic braking resistances) to maintain secure transmission system.
12. System Black Start Capability: The ability of generating unit to proceed from a shutdown
condition to an operating condition without assistance from the grid and then to energize the grid
to help other units start after a blackout occurs.
It should be noted that identification and definition of a particular ancillary service is system dependent.
There is no global definition of a particular ancillary service that is applicable in all systems. There can be
many other possible definitions or combinations.

3. Classification of Ancillary Services

There can be various ways of classifying the above ancillary services. One common approach would be to
identify when and how frequently these services are required by the system operator [23]. Thus, three
groups can be formed:

i. Services required for routine operation:

These are the services which the system operator requires quite frequently. Some of these may be
required to provide corrective action on minute-to-minute basis. Following services can be grouped
under this category:

(a) System control

(b) Reactive power support
(c) Regulation
(d) Load following
(e) Energy imbalance
(f) Real power loss displacement

ii. Services required to prevent an outage from becoming a catastrophe:

These services prevent the system from going out of step even if a major event occurs. These do not
come into picture on daily basis, or rather; no proactive measures are required to be taken either by the
system operator or the service provider on daily basis. Their effectiveness is sensed only under
contingent situation. Following services fall under this category:

(a) Spinning reserve

(b)Supplemental reserve
(c)Network stability services

iii. Services needed to restore a system after blackout:

Re-energizing the system after complete blackout requires support from certain generating stations,
which can pickup generation even in the absence of external electricity support. Such generating units
provide the system black start capability. These services are very rarely used.

A closer look at the list of ancillary services reveals that they are either related to:

1. generation-load balancing issues or

2. the network security related issues.

In further sections, load-generation balancing related services, as well as reactive power support
services, under the network security domain are discussed in detail.

4. LOAD GENERATION BALANCING RELATED SERVICES

There can be various ways of classifying the above ancillary services. One common approach would be to
identify when and how frequently these services are required by the system operator [23]. Thus, three
groups can be formed:
Frequency deviations, if large enough, may lead to total system collapse. If the system frequency drops
drastically due to a sudden mismatch of load and generation, the under-frequency protection relays
isolate the generating units to avoid damage. This dis-connection of generating units further increases
the drop in frequency. This unbalance and series of incidences may cause disconnection of tie lines and
affect the stability of neighboring control areas.

The imbalance between load and generation may arise due to uncertainties in demand forecasting,
generators' inability to follow up the changes in load and generation or load trips. The vertically
integrated utility was responsible for maintaining sufficient generation to cope up with the load variations
and maintain the reliability. However, under the restructured environment, many questions arise about
which generator should take up the burden of providing the balance and how it would be compensated
for the same.

Figure 6.1 shows three components of load variations during one scheduling hour. The first element is
the average load during the scheduling period, 65 MW over the one hour shown in this case. The second
element is the trend during the hour. In this case, this element increases from -5 MW at 7 am to +10
MW at 8 am. The third element is the rapid fluctuations in load around the underlying trend. Here, the
fluctuations range over ±2 MW. Combined, the three elements yield a load that ranges from 60 to 75
MW during this hour.

The rapid fluctuations are handled by the regulation service. The trend of slower change during that hour
is taken care by load following service. Load following involves handling the imbalance at the end of
scheduling interval. These two services plus energy imbalance together ensure that, under normal
operating conditions, a control area is able to continuously balance generation to load. Explanation of
two services is provided next.

Figure 6.1: Components of a load

i. Frequency Regulation

Regulation is the use of online generating units that are equipped with control mechanism that can
change output quickly to track the moment-to-moment fluctuations in load and unintended fluctuations
in generation. In doing so, regulation helps to maintain the system frequency, minimize the differences
between actual and scheduled power flows between control areas, and match generation to load within
the control area. Figure 6.2 shows the simplified block schematic for frequency regulation.

The frequency regulation consists of two modes of operation, namely, primary regulation and secondary
regulation. The primary regulation is basically the governor action with certain droop characteristic, while
secondary regulation pertains to Automatic Generation Control (AGC). Figure 6.3 shows the drooping
governor characteristics of a generator connected to the system. This droop characteristic is facilitated
by a frequency error feedback provided to the governor. The slope of the characteristic determines the
change in the unit’s output for a given change in frequency. This unit regulation is provided in
percentage. For instance, 4% regulation for a unit indicates that a 100% change in unit output requires
4% change in frequency. This corrective action facilitated by governor response is termed as primary
regulation.

Figure 6.4 shows drooping characteristics of two units connected to a common load. A change in load in
this case, will be shared by both the units, depending on their droop characteristics so as to operate at a
unique frequency. At nominal frequency f0, unit 1 and unit 2 outputs are P1 and P2 respectively. In case
of a load increase, the units are slowed down and the governors increase the output until the units settle
at a new operating frequency f’. Each unit shares additional load in proportion to slope of its droop

characteristic, so that their outputs are and , respectively.

Figure 6.2: Simplified block schematic for frequency regulation

Thus, the generation increase, taking place within few seconds along with support from frequency
dependent loads, arrests any further fall in frequency. The system then (in the absence of proportional
and integral control) stabilizes and operates at a new frequency that is slightly less than the nominal
frequency. This mechanism is sometimes referred to as Free Governor Mode Operation (FGMO).

This whole control action causes unscheduled power flows on tie-lines. To restore the system to nominal
frequency, the generation set point of some units should be readjusted, based on new generation-load
balance. In some instances, this is done through an automatic control action known as Automatic
Generation Control (AGC), and is referred to as secondary control. The secondary loop basically aims at
bringing the Area Control Error (ACE) to zero so that tie line flows between the control areas are
maintained to specified values. In some systems, this is achieved through manual adjustment of
governor set point. This control action is sometimes referred to as tertiary regulation.
 Figure 6.3: Generator droop characteristics

Figure 6.4: Two units sharing same load

ii. Load Following

Load following is the use of online generation equipment to track the intra and inter-hour changes in
customer loads. Unlike the minute-to-minute fluctuations, which are generally uncorrelated among
customers, the long-term changes in customer loads are generally correlated with each other.

iii. Spinning Reserve Services

Unlike the regulation and load following services, the reserve services are designed to be activated
during large power deficits under a contingent situation. The frequency plot associated with the case
presented in Figure 6.1 is shown in Figure 6.5. In this, it is assumed that at 7:45 A.M., a big generator is
suddenly disconnected. This is the situation when reserve services should come into play. Depending
upon the minimum time in which the generation should start providing corrective action, the ancillary
services are classified into following two categories:
1. Spinning reserve services
2. Supplemental reserve services
 Figure 6.5: Roles of reserve services

The spinning reserves must start responding quickly to the frequency change. These reserves are
available in the form of synchronous generators that are synchronized with the grid and generate at a
level lower than the maximum rated capacity. This response must be available within 10s and should be
sustainable for further 20s. There are various issues of debate related to definition of spinning reserves.
There are system specific peculiarities which are reflected in the definition of spinning reserve of that
particular system. A discussion on this debate is provided in [24]. Thereby, the authors have provided a
general definition of spinning reserves as follows:

The spinning reserve is the unused capacity which can be activated on decision of the system operator
and which is provided by devices which are synchronized to the network and able to affect the active
power.

Thus, the authors shed light on two important issues: whether spinning reserves are activated manually
or are automatic; and whether only generators can provide spinning reserve or demand side can also
participate as a spinning reserve? Above generic definition of spinning reserve states that they are
activated by system operator manually and in stricter sense, the demand side can also participate as a
spinning reserve.

The units providing supplemental services need not start responding immediately. The supplemental
reserve services are provided by the generators that have fast start-ups such as gas or oil fired
generators or hydro generators. This response must be fully available within 30s of the incidence and
must be sustainable for further 30 minutes. As can be seen from Figure 6.5, the spinning reserve
succeeds in arresting the frequency drop before it reaches the statutory limit. The supplemental reserve
then helps to bring the system frequency closer to nominal value.

While providing supplementary services, the ramp up rate of the generating unit decides its ability to
provide the reserve service. However, this is not the only deciding factor. The transmission constraints
can limit the ability of a particular unit to act as a reserve provider.
 5. VOLTAGE CONTROL AND REACTIVE POWER SUPPORT SERVICE

System operators use reactive power resources to maintain the voltage at all the buses around the
nominal value. Keeping transmission level voltages at nominal value or within a tight range ensures
proper voltages at the distribution levels. Another important factor is that the transmission network
security is closely associated with the voltage profile. Since the voltage on a bus is strongly coupled with
the supply of reactive power, the voltage control service is also called reactive power support service.It
is prudent to control the bus voltages by providing for reactive power locally, rather than making it to
flow through the grid. There are three major reasons for this.

First, the power system equipment is designed to operate within a range of voltages, usually within ±
5% of the nominal voltage. At low voltages, the performance of most of the electrical equipments is
poor. For example, induction motors can overheat and get damaged. High voltages not only damage the
equipment but lalso shorten their life.

Second, the power transmission capability available from a transmission line design is limited by
technological as well as economical constraints. The reactive power consumes transmission and
generation capacity. To maximize the amount of real power that can be transferred across a congested
transmission interface, reactive power flows must be minimized. Similarly, reactive power production can
limit a generator’s real power capability.Third, moving reactive power on the transmission system incurs
real power losses. Thus, additional energy must be supplied to replace these losses.

6. Different Sources of Reactive Power

Reactive power support can be provided by active sources like generators and synchronous condensers,
as well as by locally installed passive elements like capacitors or inductors. Power electronics based
family of devices called Flexible AC Transmission System (FACTS) can also act as reactive power support
devices. Various sources of reactive power support have different characteristics in terms of dynamics
and speed of response, ability of voltage changes, capital costs, operating costs and opportunity costs.
Their technical as well as economical considerations are discussed next.

i. Generators

The synchronous generators are very fast reactive support devices. The ability of a generator to provide
reactive support depends on its real-power production. Figure 6.6 shows the limits on real and reactive
production for a typical generator. This is also called as a capability curve of a generator. Like most
electric equipment, generators are limited by their current-carrying capability. Near rated voltage, this
capability becomes an MVA limit for the armature of the generator rather than a MW limitation, shown as
the armature heating limit in the figure. Production of reactive power involves increasing the magnetic
field to raise the generator’s terminal voltage. Increasing the magnetic field requires increasing the
current in the rotating field winding. This too is current limited, resulting in the field-heating limit shown
in the figure. Absorption of reactive power is limited by the magnetic-flux pattern in the stator, which
results in excessive heating of the stator-end iron, the core-end heating limit. The synchronizing torque
is also reduced when absorbing large amounts of reactive power, which can also limit generator
capability to reduce the chance of losing synchronism with the system.
Usually, a synchronous generator is mandated to absorb or produce reactive power in a band bounded
by limits R1and R2, shown by dotted lines in Figure 6.6. However, outside this band, it is entitled for
opportunity costs if real power output is required to be reduced in order to produce more reactive power.
For example, as shown in the figure, if a generator is asked to supply reactive power equal to B2, rather
than B1, the operating point of generator changes from current point X to new point Y, forcing reduction
in real power output from D1 to D2. More on calculation of loss of opportunity cost is provided in further
sections.
 Figure 6.6: Generator Capability Curve

Under the vertically integrated structure, only the capital and operating costs that could be associated
with the extra equipment (e.g., parts of the voltage regulator, exciter, stator, and rotor plus the
operating costs associated with field losses) required for voltage control were charged to the voltage
control function. However, in a deregulated environment, the opportunity costs associated with reduced
real power sales when excessive reactive power is required becomes an important component of the
total cost of providing voltage control from generators. In [23], it is mentioned that the costs and prices
for voltage support will be highly nonlinear with system load. At very high levels of system load, the
opportunity cost of voltage support will far exceed the embedded cost.

ii. Synchronous Condensers

Synchronous machines that are designed exclusively to provide reactive support are called synchronous
condensers. Synchronous condensers have all of the response speed and controllability advantages of
generators without the need to construct the rest of the power plant. As compared to the static
alternatives of reactive power support, due to presence of moving parts and system auxiliaries, they
require more maintenance. They also consume real power equal to about 3% of the machine’s reactive-
power rating.

iii. Capacitors and Inductors

Capacitors and inductors are passive devices that generate or absorb reactive power. They accomplish
this without significant real-power losses or operating costs. The output of capacitors and inductors is
proportional to the square of the voltage. Capacitor banks are composed of individual capacitors. The
individual capacitors are connected in series and parallel to obtain the desired capacitor-bank voltage
and capacity rating. The capacitor banks are often configured with several steps to provide a limited
amount of variable control. Inductors are designed to absorb a specific amount of reactive power at a
specific voltage. They can be switched on or off but offer no variable control.

iv. Static VAR Compensators (SVCs)

An SVC combines conventional capacitors and inductors with fast switching capability so as to provide a
continuous range of control. The range can be designed to span from absorbing to generating reactive
power. Consequently, the controls can be designed to provide very fast and effective reactive support
and voltage control. Because SVCs use capacitors, they suffer from the degradation in reactive capability
as voltage drops.

v. Static Synchronous Compensators (STATCOMs)

The STATCOM is a solid-state shunt device that generates or absorbs reactive power and is one member
of a family of (FACTS) devices. The STATCOM shows similar performance as that of SVC, when compared
on the basis of response speed, control capabilities, and the use of power electronics. However, the basic
difference is that the STATCOM uses power electronics to synthesize the reactive power output, without
employing capacitors and inductors. The STATCOM ensures very fast and efficient voltage control by
virtue of its solid state nature. STATCOM capacity does not suffer as seriously as SVCs and capacitors do
from degraded voltage. STATCOMs are current limited - so their MVAR capability responds linearly to
voltage as opposed to the voltage-squared relationship of SVCs and capacitors. This attribute greatly
increases the usefulness of STATCOMs in preventing voltage collapse.

7. Comparison between Various Sources of Reactive Power

The comparison can be based on three parameters: voltage support ability, costs and means of
procurement.

i. Voltage support ability

A limiting characteristic of capacitors and capacitor-based SVCs is that output drops dramatically when
voltage is low and support is needed most. STATCOMs provide more support under low-voltage
conditions than capacitors or SVCs because their capability drops linearly with voltage. The output of
rotating machinery (i.e., generators and synchronous condensers) generally rises with dropping voltage.
Generators and synchronous condensers generally have additional emergency capacity that can be used
for a limited time. Thus, Voltage-control characteristics favor the use of generators and synchronous
condensers.

ii. Costs

Costs, on the other hand, favor capacitors. Generators have extremely high capital costs because they
are designed to produce real power, rather than reactive power. Even the incremental cost of reactive
support from generators is high, although it is difficult to unambiguously separate reactive power costs
from real power costs. Operating costs for generators are high as well because they can involve real-
power losses. Finally, because generators have other uses, they experience opportunity costs when
called on simultaneously to provide high levels of reactive and real power. Synchronous condensers have
the same characteristics as generators; but, because they are built solely to provide reactive support,
their capital costs are not as high and they incur no opportunity costs. SVCs and STATCOMs are high
cost devices as well, although their operating costs are lower than those for synchronous condensers and
generators.

iii. Means of procurement

System operators can acquire reactive sources either through mandates or purchases. It might be
possible to create competitive markets for obtaining these services, provided the reactive supplies are
not geographically restricted. It is a general belief that the location limitations on reactive resources are
sufficiently demanding that competitive markets can not develop for this service. However, some
possible reactive power market designs are proposed in [23].Some system operators pay generators
their embedded costs for reactive resources. However, determining the embedded costs of generator to
provide reactive power support leads to ambiguity. This is so because; the same equipment is used to
provide both real and reactive power. Questions like what percentages, for example, of the exciter,
generator stator, generator rotor, turbine assembly, and step-up transformer should be assigned to each
function are not easy to answer. Table 6.1 shows the comparison of various types of reactive power
sources.

Reactive Ability to Costs

Speed of
Power support
response
Source voltage Operating Opportunity
 Synchronous
Fast Excellent High Yes
Generator

Synchronous
Fast Excellent High No
Condenser

Poor,
Slow,
capacitor Drops with None No
Stepped
V2

Poor,
SVC Fast Drops with Moderate No
V2

Fair, Drops
STATCOM Fast Moderate No
with V

Table 6.1: Comparison of various sources of reactive power support

8. Issues in Reactive Power Management

The research pertaining to reactive power management can be classified into two streams: market
design for reactive power and reactive power placement analysis. The possibility of establishing a market
mechanism for reactive power is an involved issue because of the basic difference in needs and
characteristics of reactive power when compared with real power. It has been mentioned earlier that
reactive power support should preferably a local phenomenon. Thus, it is now easy to appreciate that the
worth of 1 MVAR of reactive power is different at different locations in the system. Some of these
concerns about reactive power make market modeling for it different from that of real power. These
aspects are discussed at length with some alternatives of reactive power market designs in [5, 13, 16]. A
great deal of research has been done on optimal allocation and sizing of reactive power sources to
improve the system voltage profile and reduce losses [6-12]. Reference [21] proposed an integrated
framework for optimal reactive power planning and its spot pricing, in which the selection of VAR source
sites is based only on the real power generation operation benefit-to-cost ratio for a capacitor on a load
bus. The approach neglects the effect of voltage improvement and system loss reduction in the selection
of VAR source sites. Three parallel methods can be used to determine the potential sites for new VAR
sources, namely: the cost-benefit analysis (CBA), the sensitivity method (SM) and the voltage security
margin method (VSMM) [21]. All three methods (CBA, SM and VSMM) reflect the improvement of the
system operation state after the VAR support service is provided. The reader is referred to appropriate
references for details of the above aspects.

9. BLACK START CAPABILITY SERVICE

A blackout is a rare contingency, but it nevertheless does occur. In order to reduce the economical and
social consequences, it is important to restore power as fast as possible. The system operator is then
bestowed with the responsibility of restoring the system to normal operating state as soon as possible.
However, restoration of the system after a major blackout is not an arbitrary process, but needs a
methodic sequential approach. Restarting of large thermal power plants requires major chunk of electric
power for its auxiliaries. On the other hand, the electric power resources like hydro plants, diesel
generators, etc., can be started without help from the grid. The system operator is required to have
enough of these resources at its disposal after blackout.During the restoration process, the energization
of long transmission lines and the capability of generators to support reactive power creates major
problem. Sometimes, under the deregulated environment, the restoration process may involve private
generators and multiple transmission companies. In such situations, the financial compensation for these
private entities adds a new dimension to the restoration process.The overall coordination of network
facilities owned by different entities and allocation of costs of various support entities is hard to
determine. Moreover, the ‘worth’ associated with this type of support is not a measurable quantity.
Therefore, the system operator can make long term contracts so as to procure black start capability.
However, technical capabilities of contracted generators and their locations need to be considered.

10. HOW TO OBTAIN ANCILLARY SERVICES?

The reason for existence of ancillary services is the security and reliability of the network.
Smooth and secured running of the system is of paramount importance, whether it be vertically
integrated utility or the restructured power system. Since one of the major aspects of
deregulation is competition, ancillary services can also be seen as an activity that can be
subjected to competition. However, whether the system security and reliability can go hand-in-
hand with the competition, or rather, should be subjected to competition or not is the moot
question. Looking at the task achieved by each type of ancillary services, one can easily make
out that there are some services where competition can be introduced, while for others,
providing such services is mandatory for the participant. Thus, there are two ways of obtaining
the ancillary services: In the first case, provision of ancillary services is made mandatory for the
participant who wishes to take part in the energy market. The other way could be to obtain the
services on commercial basis. Here, the services can be obtained based on long term contracts
or daily competitive market.It should be noted that introducing competition in the ancillary
service market can not be directly compared with the competition in the energy market. The
system security is the most important goal, and system operator should take all possible steps
to achieve it. However, lack of competition should not result in over payment by the system
operator towards the ancillary services. Moreover, those services which are inter-linked with the
energy market (like spinning reserve), should not give chance of market exploitation for few
entities which are in a position to do so. Thus, competition in some cases is necessary and
fruitful. Both the ways of procuring ancillary services have their own advantages and
disadvantages. The choice of obtaining a service depends on the type of service and practices
prevailing in the system.

Mandatory provision of ancillary services

In this approach, before a participant is connected to the grid, it has to make sure that it is in a
position to provide the ancillary services mandated by the system operator. The system
operator lays down the rules to be followed by the participants. The rules for the connection to
the grid can be:

 The generator should be equipped with droop characteristics of 5%. This helps in
frequency regulation.
 The generator should be able to operate in a power factor range of 0.85 lead to 0.9 lag.
It should be equipped with Automatic Voltage Regulator (AVR).

These types of compulsions act more or less like the rules existing in the vertically integrated
utility. This will ensure that enough resources will be available towards system security. This
approach is a simpler one; however, it does not lead to economic efficiency. Some of the
problems associated with this approach are as follows:

 There is a chance that more than sufficient sources are likely to be developed, which is
not desired. For example, each and every generating unit need not take part in the
frequency regulation process.
 The participants may think that they are denied the profits of the competitive market
just because they are forced to supply services at an additional cost.
 The approach does not leave room for technological or commercial innovation.
 Some units may be unable to provide some of the services. For example, nuclear power
plants can not be subjected to rapid changes in its output. Hence, same set of rules can
not be applied to all the participants.
Markets for ancillary services

The economic disadvantages and difficulty of practical implementation of compulsory services

necessitates introduction of competition in at least some of the ancillary services. The preferred
form of mechanism depends on the type of the ancillary service. Services like black start
capability can be procured on long term basis. These are the services in which the amount of
service provided does not change much with the time. Also, this amount does not depend on
the activity of the spot market. The system operator may run a separate market for regulation
asking generators to submit their up and down regulation bid. The reserve capabilities can be a
mix of two approaches. The system operator may make a long term contract for some part of
the reserve requirement, while it can obtain remaining reserve requirement through short term
market mechanism.

11. Co-optimization of Energy and Reserve Services

In all the power markets of the early days, energy and reserve were traded in different
markets. These markets were cleared successively in a sequence determined by the speed of
response of the service. The market for reserve would clear first and then the energy market
would be cleared. The idea behind this was that the resources which were not cleared in one
market would be offered in the other market. Bids that were successful in one market would not
be offered in the next market.It has been mentioned in Chapter 3 that various products offered
by a generator are strongly interlinked. The natural choice of allocating various products is to
go for a joint optimization of all products. Thus, energy and reserve should be offered in joint
markets and these markets should be cleared simultaneously to minimize the overall cost of
reserve and energy. If the energy and reserve are obtained through separate markets instead
of joint optimization, following situation may arise:
 Partially loaded generators cannot sell as much energy as they might otherwise do.
 Out of merit order dispatch is done to meet the load.

The joint-optimization (also known as co-optimization) will take dispatch decision taking into
consideration the availability of resources and the overall cost. The joint optimization of energy
and reserve is done in multi-settlement nodal pricing markets like PJM.Suppose the energy and
reserve market is being co-optimized. As in the energy market, reserve providers offer to
provide reserve. The reserve offers do not reflect the cost of lost opportunity to sell the energy.
Instead, they are related to the expected cost of providing reserves, which might include some
fixed administrative costs and some variable operating costs associated with providing the
reserve. Let us see what is meant by loss of opportunity cost in the context of reserve provision
with the help of Figures 6.7 and 6.8. Suppose five generators are present in the system and
they have provided the block bids.

Figure 6.7: energy-only dispatch

 Figure 6.8: Loss of opportunity cost

Let us work on standard simplifying assumptions and jump to results such that market clearing
price is λ with generator D as marginal generator. Now take the case of combined energy and
reserve market. Suppose RD is the system total reserve demand. Suppose, in addition to
energy offer, generating unit C offers to provide reserve for free, i.e., at 0 INR / MWh (this is a
simplistic case we have assumed). Then, generator C will have to de-load its scheduled output
to PGc-RD . In order to satisfy the power balance, generation D will have to increase its power
output to PGc+RD . The shaded portion of Figure 6.7 represents loss of opportunity cost of
generating unit C:(λ-C3).RD

Suppose there is a market that operates on a centralized basis, the generators’ bids to produce
electrical energy are equal to their marginal costs and that the market rules do not include
separate bids for the provision of reserve. To clear the market, the operator must determine
the dispatch that minimizes the cost of production while respecting operational constraints. For
the sake of simplicity, let us assume that the network has infinite capacity. Thus, the
optimization problem can be formulated as:

.........................................................................................................6.1

......................................................................................................6.2

.....................................................................................................6.3

.......................................................................................6.4

........................................................................................................6.5

The Lagrangian function of the above formulation can be written as:

...............................................................6.6

.....................................................................6.7

...................................................................................6.8

By applying standard Kuhn-Tucker conditions:

...............................................................................................6.9
 ....................................................................................6.10
Thus, expressions for λ1 and λ2 can be given as:

........................................................................................................6.11

..............................................................................................6.12

Thus, the Lagrange multiplier associated with the constraint on the production-demand balance
gives the marginal cost of producing electrical energy. Similarly, the multiplier associated with
the reserve requirement constraint gives the marginal cost of providing the reserve. Suppose,
no limits are hit,
μ1 = μ2 =μ3 = μ4 =0 then, . This is equal λ criterion of conventional economic dispatch
problem. All generators work on the same marginal cost and marginal cost of providing reserve
is zero. Suppose, a particular generator i hits its maximum limit such that

........................................................................................................6.13

then, and and expression for marginal energy costs and marginal reserve costs can be given as:

...........................................................................................................6.14

...................................................................................................6.15

From the last equation it becomes clear that the revenue collected by a generator is exactly
equal to opportunity cost of not selling the energy. Thus, even if a generator is asked to be
available to provide a reserve and thus hits its maximum limit including the energy generation,
it does not incur monetary loss because the system marginal cost for energy will be higher than
that generator’s own marginal cost of production and the difference will be paid to generator
which can be assumed to be a loss of opportunity cost. In a sense, the generator is indifferent
whether it is asked to produce energy or be available for reserve.

Thus, it is possible to clear energy and reserve markets simultaneously in a way that minimizes
the cost to consumers, meets the security requirements but also ensures fair treatment to all
the providers of energy and reserve services.