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A system operator's utility function for the frequency response market

Author

Listed:
  • Thomas Greve

    (Faculty of Economics, University of Cambridge)

  • Fei Teng

    (Imperial College London, MINES ParisTech, PSL Research University)

  • Michael Pollitt

    (Faculty of Economics, University of Cambridge)

  • Goran Strbac

    (Imperial College London)

Abstract

How can the electricity system operator determine the optimal quantity and quality of electricity ancillary services (such as frequency response) to procure in a market increasingly characterized by intermittent renewable electricity generation? The paper presents a system operator's utility function to calculate the exchange rates in monetary values between different frequency response products in the electricity system. We then use the utility function in a two-sided Vickrey-Clarke-Groves (VCG) mechanism combined of two frequency response products 'enhanced and primary' in the context of the system in Great Britain. This mechanism would allow the market to reveal to the system operator the welfare optimal mix of speed of frequency response and quantity to procure. We show that this mechanism is the efficient way to support new faster sources of frequency response, such as could be provided by grid scale batteries.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Thomas Greve & Fei Teng & Michael Pollitt & Goran Strbac, 2017. "A system operator's utility function for the frequency response market," Working Papers EPRG 1713, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1713
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    References listed on IDEAS

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    Cited by:

    1. Michael G. Pollitt & Karim L. Anaya, 2021. "Competition in Markets for Ancillary Services? The Implications of Rising Distributed Generation," The Energy Journal, , vol. 42(1_suppl), pages 1-2, June.
    2. Karim L. Anaya & Michael G. Pollitt, 2021. "The Role of Regulators in Promoting the Procurement of Flexibility Services within the Electricity Distribution System: A Survey of Seven Leading Countries," Energies, MDPI, vol. 14(14), pages 1-25, July.
    3. Laís Domingues Leonel & Mateus Henrique Balan & Dorel Soares Ramos & Erik Eduardo Rego & Rodrigo Ferreira de Mello, 2021. "Financial Risk Control of Hydro Generation Systems through Market Intelligence and Stochastic Optimization," Energies, MDPI, vol. 14(19), pages 1-18, October.
    4. Glismann, Samuel, 2021. "Ancillary Services Acquisition Model: Considering market interactions in policy design," Applied Energy, Elsevier, vol. 304(C).
    5. Luis Cruz & Alexander Águila Téllez & Leony Ortiz, 2023. "Optimal Generation Dispatch in Electrical Microgrids Based on Inertia Markets as a Solution to Frequency Stability," Energies, MDPI, vol. 16(22), pages 1-19, November.
    6. Badesa, L. & Teng, F. & Strbac, G., 2020. "Pricing inertia and Frequency Response with diverse dynamics in a Mixed-Integer Second-Order Cone Programming formulation," Applied Energy, Elsevier, vol. 260(C).
    7. Li, Yan & Feng, Tian-tian & Liu, Li-li & Zhang, Meng-xi, 2023. "How do the electricity market and carbon market interact and achieve integrated development?--A bibliometric-based review," Energy, Elsevier, vol. 265(C).
    8. Zhao, Zhigao & Yang, Jiandong & Chung, C.Y. & Yang, Weijia & He, Xianghui & Chen, Man, 2021. "Performance enhancement of pumped storage units for system frequency support based on a novel small signal model," Energy, Elsevier, vol. 234(C).
    9. Chyong, C. & Pollitt, M. & Cruise, R., 2019. "Can wholesale electricity prices support “subsidy-free” generation investment in Europe?," Cambridge Working Papers in Economics 1955, Faculty of Economics, University of Cambridge.
    10. Anaya, K. & Pollitt, M., 2018. "Storage Business Models: Lessons for Electricity from Natural Gas, Cloud Data and Frozen Food," Cambridge Working Papers in Economics 1810, Faculty of Economics, University of Cambridge.
    11. Chyong, Chi Kong & Newbery, David, 2022. "A unit commitment and economic dispatch model of the GB electricity market – Formulation and application to hydro pumped storage," Energy Policy, Elsevier, vol. 170(C).
    12. Michael G. Pollitt & Lewis Dale, 2018. "Restructuring the Chinese Electricity Supply Sector – How industrial electricity prices are determined in a liberalized power market: lessons from Great Britain," Working Papers EPRG 1839, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    13. Karim L. Anaya & Michael G. Pollitt, 2019. "Storage Business Models: Lessons for Electricity from Cloud Data, Frozen Food and Natural Gas," The Energy Journal, , vol. 40(1_suppl), pages 409-432, June.
    14. Yifeng Liu & Meng Chen & Yuhong Fan & Liming Ying & Xue Cui & Xuyue Zou, 2024. "Design of a Stochastic Electricity Market Mechanism with a High Proportion of Renewable Energy," Energies, MDPI, vol. 17(12), pages 1-21, June.
    15. Chowdhury, Jahedul Islam & Balta-Ozkan, Nazmiye & Goglio, Pietro & Hu, Yukun & Varga, Liz & McCabe, Leah, 2020. "Techno-environmental analysis of battery storage for grid level energy services," Renewable and Sustainable Energy Reviews, Elsevier, vol. 131(C).

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    More about this item

    Keywords

    Utility function; ancillary services; system operator; energy storage; VCG mechanism;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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