Module 6: Ancillary Services

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.

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 generators
output or a customers 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.
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:
1. 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
2. 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
3. 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.
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 underfrequency protection relays isolate the generating units to avoid damage. This disconnection 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

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 units 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

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.
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.
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 generators 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.
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.
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 generators 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.
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 machines reactive-power rating.
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.
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.
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.
Comparison between Various Sources of Reactive Power
The comparison can be based on three parameters: voltage support ability, costs and
means of procurement.

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.
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.
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.

Ability
Costs
to
support Operating Opportunity
voltage

Reactive
Power
Source

Speed of
response

Synchronous
Generator

Fast

Excellent

High

Yes

Synchronous

Fast

Excellent

High

No

Condenser
capacitor

Slow,
Stepped

Poor,
Drops
with V2

None

No

SVC

Fast

Poor,
Drops
with V2

Moderate

No

STATCOM

Fast

Fair,
Drops
with V

Moderate

No

Table 6.1: Comparison of various sources of reactive power support

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.
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.
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.
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 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:(-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
.....................................................................................6.1
0
Thus, expressions for 1 and 2 can be given as:
............................................................................................................6.11
................................................................................................6.1
2
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,
1 = 2 =3 = 4 =0 then, . This is equal 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 generators 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.
INTERNATIONAL COMPARISON
In this section, a brief account of technical and economic aspects of ancillary services of
the markets of England and Wales, Nordic Countries, California, New York and Australia
is given. Aspects of two important ancillary services, i.e., voltage control and frequency
regulation are discussed.

England and Wales

The transmission grid of England and Wales is operated by National Grid Company
(NGC), which is also responsible for managing ancillary services. The costs associated
with the provision of ancillary services are recovered from the consumers through uplift
in transmission payment mechanism.
Voltage Control
Provision of this service is required from all the generation units with a capacity over 30
MW. Voltage must be kept within the range of Vnom+- 10% for 400, 275 and 132 kV
networks and the power factor (PF) between 0.85 capacitive and 0.95 inductive. The
main costs associated with this service correspond to capacity and operation. The ratio of
capacity price to operation price is approximately 1:2. Consumers pay for the service
through an uplift in their electricity tariff.
Frequency Control
The system operator (SO) is required to keep the frequency between 49.5 and 50.5 Hz.
In the case of a contingency, the frequency is allowed to drop under 49.5 Hz, but for not
more than 1 minute. The supply of primary frequency regulation is mandatory for all the
generators with an installed capacity of over 50MW, which must provide the service in
continuous time. Generators are set for a droop of 35%. Large consumers can provide
primary frequency regulation through load shedding, where a response period of 10 s
and a duration period of 20 s are required. The costs associated with the service are
generally traded through annual bilateral contracts. Consumers pay for this service
through an increase in their electricity payment which includes capacity, operation and
compensation. The service of secondary frequency regulation is considered as a
commercial service and it is not considered as a mandatory provision. Generators
provide it using AGC. For those that provide the service, a response time of 30 s and a
duration period of 30 min are required. As in the previous case, the costs associated with
this service are difficult to identify, and they are traded based on annual bilateral
contracts and competitive auctions. The consumers pay through an increase in their
electricity tariff which includes capacity, operation and compensation.
Nordic Countries
Ancillary services are traded in a real-time market managed by the transmission system
operators. The costs associated with ancillary services are directly transferred to the
users through the transmission payment.
Voltage Control
The local provision of voltage control and reactive power is mandatory for all the system
generators. A response time of 5 s is required and the service must be supported for the
period that is needed. The costs associated with the service are low, since the provision is
in charge of the hydraulic generators, and the transaction mechanism corresponds to
annual contracts at a fixed price. The suppliers receive an operational payment, only for
quantities that exceed the mandatory range and the consumers payment is incorporated

in the transmission tariff.

Frequency Control
The system frequency is required to be within the range of 49.5 and 50.5 Hz. The service
of primary frequency regulation must be provided within 30 s after being requested by
the system operator and must be supported for the period that is needed. The required
quantity is locally calculated in every country. This is an obligatory service for all the
generation units, where they are required to keep a droop between 2 and 5%. The
transaction mechanism corresponds to annual contracts. The suppliers get a payment for
capacity and other for operation, and the consumers pay through the transmission tariff.
For example, Statnett, the system operator in Norway, determines a total amount to be
paid and each generator receives a payment according to its contribution to the service
provision. The service of secondary frequency regulation is only considered an ancillary
service when it is provided in the case of a contingency. For this service, a response time
of 15 minutes and a minimal provision period of 4 hours is required. The costs
associated with secondary frequency regulation are minor, since this provision is in
charge of hydraulic generators. The provision is assured through competitive offers. The
consumers pay through the transmission tariff.
California, USA
After the power market crisis of 2001, the Californian ISO (CAISO) redesigned its
electric energy market. It then introduced the concept of available capacity (ACAP),
whose objective is to allow the ISO to verify in advance the availability of enough
resources to satisfy the customer load as well as reserves. In the new market structure,
the energy market, the ancillary service market and the congestion management market
are jointly optimized.
Voltage Control
In the California system, the ISO procures reactive power support services on long-term
contracts from reliable must-run generating units. The actual short-term requirement is
determined on a day-ahead basis, after the real power market is settled and the energy
demand and schedules are known. Thereafter the ISO determines the location-wise
amount of reactive power required based on system power flow analysis. Daily voltage
schedules are issued to contracted generators and the transmission operators within the
region. The generators are mandated to provide reactive power within the power factor
range of 0.90 lag to 0.95 lead. For reactive power absorption / generation beyond these
limits, the generators are financially compensated for, including, a payment if they are
required to reduce their real power output.
Frequency Control
Primary frequency regulation and secondary frequency regulation are not mandatory
services. There exists up and down service regulation. The costs associated with this
service correspond to capital, operation, fuel, and reduced efficiency costs, etc. For
secondary frequency regulation, the service must be available in 10 min and should be
supported for at least 2 hours. The system operator calculates the quantity required of the
service according to a criteria that takes care of demand and contingency. The quantity

required generally comes close to 3% of the maximum demand of the system.

New York, USA
In the New York control area, ancillary services are provided by the New York ISO
(NYISO) or procured by the transmission customers and suppliers themselves. The
NYISO coordinates the provision of all ancillary services and directly arranges for those
services that are not self-supplied. Depending on the nature of the services, either
market-based or embedded cost-based prices are used to price these services. In Table
6.2, the service provider and pricing method for each service are given. Transmission
customers and suppliers are permitted to self-supply operating reserve service, regulation
and frequency response service. They must bid the required resource into ancillary
services market. The NYISO selects the successful bidders to provide each service. The
transmission customers and suppliers with resources selected by the ISO use the
revenues that they would otherwise have received for providing these services, as an
offset against charges they would otherwise need to pay the NYISO for the service.

Ancillary Service

Service
Provider

Pricing Method

Scheduling System Control

and Dispatch

NYISO

Embedded Cost
based

Voltage Support

NYISO

Embedded Cost
based

Regulation and
Frequenvy Response

NYISO or SS

Market based

Energy Reserve

NYISO

Market based

Ooperating Reserve

NYISO or SS

Embedded Cost
based

Table 2: NYISO Ancillary Service details

Voltage Control
Generating resources, which operate within their capability limits, are directed by
NYISO to produce / absorb reactive power to maintain voltages within their limits. The
pricing method for the reactive power support service is an embedded cost. The cost of
reactive power support includes the following:

The total annual embedded cost for payment.

Any applicable lost opportunity cost to provide reactive power service.

Total of prior year payments to suppliers of reactive power service less the total
of payments received by the NYISO from transmission customers in the prior

year for reactive power service.

Loss of Opportunity Cost
If the NYISO dispatches or directs a generator to reduce its real power output in order to
allow the unit to produce or absorb more reactive power, the generator may receive a
component of payment accounting for the Lost Opportunity Cost (LOC). The concept of
loss of opportunity cost was explained with the help of Figure 6.6.
In NYISO, the method for calculating the LOC is based on the following factors:

Real time long-term based marginal price (LBMP).

Original real power dispatch and the new dispatch point.

Bid curve of generator supplying reactive power service.

Figure 6.9 describes the calculation of the lost opportunity cost for a generator which
decreases its real power output to provide more reactive power service. PRT is the Longterm Based Marginal Price (LBMP), and f(P) is the bid curve of the generator supplying
reactive power support. D1 and D2 are the original and new dispatch points respectively
while B1 and B2 are the corresponding bid prices at D1 and D2. This sum is divided by
the annual forecasted transmission usage for the year as projected by the NYISO
including the system load, exports and power wheeling. NYISO calculates this payment
hourly. Transmission customers engaged in power wheeling or exporting, pay the
NYISO a charge, which is equal to the value determined as mentioned above, multiplied
by the wheeled energy at that hour.
As the real power output is decreased, the generator receives lesser revenue from the sale
of energy, although, by way of this reduced generation, it saves some generating cost.
The reduced income for the generator (R) can be described by equation 6.16.
R = Revenue Loss Savings from reduced generating cost
...................................................................................................
...6.16
The first term in 6.16 denotes the revenue lost by the generator while backing down its
real power output from D1 to D2, and the second term denotes the corresponding
reduction in generation cost. Note that, R also equals the savings to the ISO. The saving
of the generator (S) from reduced real power output is described in equation 6.17.

...........................................................................................
..........6.17

The LOC of the generator equals to the difference between R and S.Thus, it is given
as:
..............................................................................................
......6.18

Figure 6.9: Calculation of LOC

Frequency Control
This service is accomplished by committing on-line generators, predominately through
the use of automatic generation control, to follow moment-to-moment changes in load.
Regulation service is bid into the market by individual units that have AGC capability
and that wish to participate in the regulation market. Bid information includes regulation
response rate (MW/min) and regulation availability rate ($/MW). The NYISO selects
regulation service in the day-ahead market from all bidders.The bids submitted by
suppliers are stacked from the lowest priced offer to the highest priced, taking into
account the operational requirements for up and down regulation. The NYISO selects the
bids starting with the lowest bid, and the last selected bid is set as market clearing price.
All suppliers selected in the market receive an availability payment calculated with the
corresponding market clearing price. The NYISO makes the following settlement with
suppliers of regulation service:

An hourly availability payment for reserving capability to provide regulation

service.

An energy payment based on the amount of regulation provided.

Australia
Initially, the ancillary services were traded through long term bilateral contracts between
National Electricity Market Management Company (NEMMCO) and the service
suppliers. Since 2001, frequency control ancillary services are traded in competitive spot
markets.
Voltage Control
The energy code of Australia requires the power factor to be between 0.9 inductive and
0.93 capacitive. Optionally, generators can produce and absorb reactive power or operate
the generation unit as a synchronous condenser. The service provision is managed
through annual bilateral contracts.
Frequency Control
In this service, it is expected that the systems frequency varies only in the range of 50 +0.1 Hz. The system operator can request additional amounts of primary frequency
regulation, up or down. A response period from 6 to 60 s is required and the service
should be supplied during 90 s. Generators with AGC are in charge of the service
provision which is managed through annual bilateral contracts. The suppliers get
payments for enabling and compensation. Secondary frequency regulation is provided by
generators, load shedding or fast connection generation units. This service is required in
a period of 5 min and the period by which the service should be supplied is not specified.
The provision of the service is managed through annual bilateral contracts. Payments are
carried out for enabling and compensation.