Co-optimization in Power Markets
Uploaded by
hqyjlksujrmvxgdfatTopics covered
- generator efficiency,
- energy markets,
- cost of reserve,
- business opportunities,
- energy consumption,
- reactive power,
- revenue optimization,
- electricity demand,
- market structure,
- reserve procurement
Co-optimization in Power Markets
Uploaded by
hqyjlksujrmvxgdfatTopics covered
- generator efficiency,
- energy markets,
- cost of reserve,
- business opportunities,
- energy consumption,
- reactive power,
- revenue optimization,
- electricity demand,
- market structure,
- reserve procurement
Common questions
Powered by AIProvision of ancillary services offers additional revenue streams for generators beyond energy sales, opening new business opportunities. However, it imposes constraints like technical limits on ramp rates and reactive power capability, affecting the ability to adjust output swiftly and comply with voltage requirements. Generators also have capacity constraints, preventing them from supplying both spinning and non-spinning reserves simultaneously, thus necessitating strategic decision-making in balancing ancillary service provision .
Assumptions about competitive markets significantly shape the formulation of optimization problems in electricity systems. In a perfectly competitive setup, market operators dispatch generation to meet load at minimum cost while satisfying reserve demands, under the assumption that generators bid only for energy. This situation entails formulating optimization problems with decision variables such as power and reserve produced, and objectives that minimize costs while adhering to constraints like load balance and minimum reserve requirements. The assumptions ensure streamlined and economically optimal decisions consistent with market dynamics .
Co-optimization of energy and reserve procurement is necessary due to the strong interactions between supplying energy and providing reserve. Generators providing spinning reserve must operate part-loaded, leading to less energy production than if they were at full capacity. This necessitates more expensive generators to meet the energy demand and typically reduces overall generator efficiency, thereby increasing costs. Co-optimization minimizes these additional costs while ensuring that no generator is disadvantaged when providing reserve instead of energy .
Opportunity cost plays a crucial role when generators provide reserve instead of energy, as they potentially forego revenue by not selling at full capacity. This cost must be compensated for generators to maintain profitability. In pricing terms, units providing reserve without benefiting from energy sales must be compensated at least equivalent to their opportunity cost to remain indifferent. Therefore, when pricing reserve, market rules often seek to ensure compensation covers these opportunity costs, significantly impacting generators’ operational and market strategy .
Allocation of reserve costs is designed to enhance system reliability and economic efficiency by making participants, who contribute to greater service demands, pay a larger share of these costs. For instance, owners of frequently failing large generating units should bear more costs to incentivize improvement in unit reliability. This strategy aims to reduce the systemic need and overall costs of reserve, encouraging better operational standards and behaviorally economic use of system resources .
Centralized electricity markets achieve simultaneous clearing of energy and reserve services by integrating them into joint markets that clear synchronously. This approach mitigates issues of sequential market clearing, where resources unsuccessful in one market could exploit less demanding opportunities in subsequent markets. By clearing energy and reserve in unison, these markets minimize additional costs and ensure generators aren’t disadvantaged for allocating resources to reserve provision .
Market rules allow generators to submit separate bids for reserve, which can reflect additional costs such as loss of efficiency or increased maintenance required when providing reserve. In less than perfectly competitive markets, these bids are based on the perceived market value of reserve rather than just marginal costs. This mechanism ensures that generators can recuperate the opportunity costs and maintain profitability while participating in reserve markets .
Transitioning from sequential to joint market clearing for energy and reserves is expected to enhance economic efficiency and cost-effectiveness. Sequential clearing often led to market inefficiencies, with resources cascading through less demanding markets. Joint clearing optimizes resource allocation by simultaneously addressing energy-reserve interactions, thus reducing overall procurement costs. This enhances the economic value extracted by ensuring competitive neutrality of participating generators as they optimize their resources across markets .
In electricity markets, the idea that participants who increase the need for services should pay a larger cost share is pivotal to encouraging systematic efficiency improvements. For example, participants with less reliable generating units can increase reserve needs, leading to higher system costs. By making these participants bear a larger portion of reserve costs, they are incentivized to enhance their reliability, thus potentially reducing overall reserve necessities and system costs, which fosters more efficient market operations .
Setting prices for ancillary services is challenging due to the interconnectedness between energy procurement and ancillary services. The procurement of services like spinning reserve cannot be completely detached from energy procurement. Their simultaneous integration affects marginal production costs and profitability. Co-optimization addresses this challenge by ensuring that the costs and benefits of providing reserve and energy are assessed jointly, minimizing potential pricing and allocation inefficiencies .
