On Incentive-Based Ancillary Service Markets for Incorporation of Renewable Energy Sources and ...

241 Pages·2015·1.69 MB·English

by  Tobias Haring

DISS. ETH NO. 22555
On Incentive-Based Ancillary
Service Markets for
Incorporation of Renewable
Energy Sources and Demand
Response
A thesis submitted to attain the degree of
DOCTOR OF SCIENCES of ETH ZURICH
(Dr. sc. ETH Zurich)
presented by
TOBIAS WINFRIED HARING
Dipl.-Ing., Graz University of Technology
M.A.(econ), University of Graz
born on 27.04.1985
citizen of
Austria
accepted on the recommendation of
Prof. Dr. G¨oran Andersson, examiner
Prof. Dr. Tom´as Go´mez San Roma´n , co-examiner
2015

Preface
Watch your thoughts, for they become words.
Watch your words, for they become actions.
Watch your actions, for they become habits.
Watch your habits, for they become character.
Watch your character, for it becomes your destiny.
Unknown author
ThisthesisdocumentsmyresearchactivitiesatthePowerSystemsLab-
oratory at ETH Zu¨rich, starting from December 2010. I would like to
express my sincere gratitude to Prof. Dr. G¨oran Andersson for provid-
ingmethe opportunitytopursue myPhDatETHZurich. Histime for
questions and suggestions allowed me to explore a broad field in power
systemseconomicsandto gaina big picture ofnecessitiesin powersys-
temdesign. MyspecialthanksgoesalsotoProf.Dr.Toma´sG´omezSan
Roma´nforbeingmyco-examiner. Further,Iamverygratefulaboutthe
possibility to spend time for research at the Renewable Energy Analy-
sis Laboratory under supervision of Prof. Dr. Daniel Kirschen at the
University of Washington in Seattle. I also appreciated the efforts of
thewholecrewinthe Labforprovidingmealsopersonallyagreattime
in the U.S. . Finally, I thank Prof. Dr. Johanna Mathieu for the very
productivecollaborationandthe sparklingideasinnumerousmeetings.
Of course, I also would like to thank my friends and colleagues at the
Power System Laboratory, with whom I had a great time with. Last
butnotleastallstudentsundermysupervision,whoaccomplishedalot
of interesting works.
Mostofall,Iamdeeplygratefulabouttheefforts,patience,andlenience
of my family, who supported me whenever it was possible for them.
iii

Abstract
An increasing share of renewable energy production and demand side
participation call for progress in the design of electricity markets.
Broadly,marketdesignsmustensuretheaccordofshort-termefficiency,
which means that the products with the highest demand are produced
and traded with a correct price, and long-term efficiency, which means
that investments are done and markets evolve to a changing environ-
ment. Inthisthesisthefocusliesonthedesignofancillaryservicemar-
kets. Ancillary services are necessary to ensure a reliable and secure
operation of the power system and are in liberalized markets supple-
mentary traded to energy. The importance of ancillary service markets
will likely rise in the future due to the challenges previously described.
However, current ancillary service market designs have several short-
comings. In particular, there do not exist financial incentives to avoid
the reservation and deployment of ancillary services due to the social-
ization of costs. Further, demand side participation in ancillary ser-
vice markets requires the establishment of a proper market framework,
which enables fast and simple control of flexibility of the demand side,
andsimultaneouslytakesintoaccountpossibletechnicallimitationsand
privacy considerations.
Inthefirstpartofthethesis,marketframeworksfordifferentwholesale
platforms are presented, which ensure that ancillary services are pro-
curedbasedon the individualvaluation ofit. This enables the creation
of financial incentives to abate the reservation of backup capacity. The
main issue is that reliable electricity supply, and thus backup reserves
for reliable system operation, can be seen as a public good. Therefore,
market designs have to ensure that they are safe from being gamed by
marketparticipants. Theproposedmodelsaretestedwithregardstothe
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vi Abstract
parametrization and compared with different benchmark approaches.
Inthe secondpartofthethesis,amarketframeworkispresentedwhich
allowsthefinancialsettlementofdemandsideparticipationinancillary
service markets. System services are predefined through a contract-
based framework, which allows the operation of the acquired flexibility
through control signals. A new entity, an aggregator, is introduced
which seeks to collect as much private information as possible in order
to operate efficiently. The consumer tries to keep as much information
as possible private. The proposed market designs balance these two
conflicting marketdesigns via mechanism designand the applicationof
cooperativegametheory. Simulationresultsshowtheimpactofdifferent
designparametersontheexploitationofthedemandresponsepotential
and the cost efficiency.
Kurzfassung
Gegenw¨artige Elektrizit¨atsmarktdesigns ben¨otigen neue Entwicklungs-
stufen aufgrund des steigenden Anteils an erneuerbarenEnergietr¨agern
undder Einbindung der Nachfrageseite.Generellmuss Marktdesignso-
wohl kurzfristige, als auch langfristige Effizienz sicherstellen. Kurzfris-
tigeEffizienzbeinhaltet,dassdie richtigenProdukteineinemMarktzu
einem korrektem Preis gehandelt werden. Langfristige Effizienz soll In-
vestitionensicherstellenunddieM¨oglichkeitbieten,dassderMarktsich
¨andernden Umgebungsbedingungen anpasst. In dieser Arbeit liegt der
Fokus auf dem Marktdesign fu¨r Systemdienstleistungen. Systemdienst-
leistungen sind notwendig fu¨r den zuverl¨assigen Betrieb eines Elektri-
zi¨atssystems und werden in liberalisiertenM¨arkten erg¨anzendzu Ener-
gie gehandelt. Die NotwendigkeitvonSystemdienstleistungen wird ver-
mutlichinZukunftaufgrunddervorhinangesprochenenEntwicklungen
steigen.
Marktdesigns fu¨r Systemdienstleistungen haben gegenw¨artig mehrere
Schw¨achen. Zum einen existieren kaum finanzielle Anreize fu¨r die Ver-
ringerung des Bedarfs an Systemdienstleistungen. Kosten werden vor-
rangig sozialisiert. Zum anderen mu¨ssen Marktdesigns fu¨r Nachfrage-
management geschaffen werden, welche einen schnellen Zugriff auf die
Flexibilit¨at der Nachfrage erm¨oglichen, bei gleichzeitiger Wahrung von
technischen Restriktionen und Datenschutz.
ImerstenTeil dieser Arbeit werdenm¨oglicheMarktdesignspr¨asentiert,
welche eine Vorhaltung von Reserven entsprechend der individuellen
Pr¨aferenzen der Konsumenten erm¨oglichen. Diese Designs erm¨oglichen
die Schaffung von finanziellen Anreizen und, in weiterer Folge, die Ver-
ringerung der Notwendigkeit einer umfassenden Vorhaltung von Re-
serven. Das Hauptargument liegt in der Annahme, dass Reserven als
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viii Kurzfassung
¨offentliches Gut gesehen werden k¨onnen. Daher muss das Marktdesign
derart erfolgen, dass es nicht von Marktteilnehmern zu ihrem eigenen
Vorteilmanipuliertwerdenkann.DievorgestelltenModellewerdenhin-
sichtlich Parametrisierung evaluiert und mit Referenzsystemen vergli-
chen.
ImzweitenTeilderArbeitwerdenMarktdesignspr¨asentiert,welchedie
finanzielleAbwicklungvonNachfragemanagementaufSystemdienstleis-
tungsm¨arkten erm¨oglichen. Systemdienstleistungen werden durch Ver-
tr¨age vordefiniert und k¨onnen anschliessend u¨ber ein Signal abgerufen
werden. Eine neue Entit¨at, genannt Aggregator, wird im Marktsystem
eingefu¨hrt,welcherdas Zielhatm¨oglichstvielInformationenu¨ber Kos-
tenstrukturen zu sammeln um effizient zu operieren. Der Konsument
versuchthingegenm¨oglichstwenigInformationpreiszugeben.Dievorge-
schlagenen Marktdesigns vereinen die verschiedenen Interessen mittels
Mechanismus Design. Simulationen zeigen die Sensitivit¨at der vorge-
schlagenenDesigns hinsichtlich Parametrisierung.Messgr¨ossensind die
Ausnutzung vonvorhandenemNachfragepotentialunddieKosteneffizi-
enz.
Contents
List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . xvi
Nomenclature . . . . . . . . . . . . . . . . . . . . . . . . . . . xxvii
List of Figures . . . . . . . . . . . . . . . . . . . . . . . . . . xxxi
List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxiv
1 Introduction 1
1.1 Backgroundand Motivation . . . . . . . . . . . . . . . . 1
1.2 Main Contributions of this Thesis. . . . . . . . . . . . . 5
1.3 Thesis Outline . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 List of Publications . . . . . . . . . . . . . . . . . . . . . 7
I Allocation of Balancing Responsibility 11
2 Cost Allocation in a Centrally Operated Systems 13
2.1 Introduction and Motivation. . . . . . . . . . . . . . . . 13
2.2 Literature Review . . . . . . . . . . . . . . . . . . . . . 15
2.3 Modelling Framework . . . . . . . . . . . . . . . . . . . 16
2.3.1 Cost Allocation of Event-BasedReserves. . . . . 16
2.3.2 Cost Allocation of Non Event-Based Reserves . . 24
2.3.3 Cost Allocation of Ramping Services . . . . . . . 27
2.3.4 Non-Linear Optimization . . . . . . . . . . . . . 29
2.4 Simulation Setup . . . . . . . . . . . . . . . . . . . . . . 34
ix
x Contents
2.5 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.5.1 Shared Balancing and/or Ramping Effort . . . . 39
2.5.2 Cost Impact of Preference Revelation . . . . . . 43
2.6 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3 Performance Based Renewable Energy Support 45
3.1 Introduction and Motivation. . . . . . . . . . . . . . . . 45
3.2 Literature Review . . . . . . . . . . . . . . . . . . . . . 48
3.3 Structure of a Performance Based RES Support . . . . . 50
3.4 Adaptive In-feed Support Component . . . . . . . . . . 52
3.4.1 Costs of Abating Fluctuating In-feed/Demand . 52
3.4.2 Reserve Requirements . . . . . . . . . . . . . . . 55
3.4.3 Co-Optimization . . . . . . . . . . . . . . . . . . 56
3.5 Simulation Setup . . . . . . . . . . . . . . . . . . . . . . 58
3.6 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
3.6.1 Impact of Balancing Performance . . . . . . . . . 59
3.6.2 Impact of Reserve Requirements . . . . . . . . . 66
3.6.3 Impact of Preference Revealing Mechanism . . . 66
3.7 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4 Cost Allocation in a Decentralized System 69
4.1 Introduction and Motivation. . . . . . . . . . . . . . . . 69
4.2 Literature Review . . . . . . . . . . . . . . . . . . . . . 72
4.3 Modeling Framework . . . . . . . . . . . . . . . . . . . . 72
4.3.1 Overview . . . . . . . . . . . . . . . . . . . . . . 72
4.3.2 Allocation of Reserve Capacity Costs. . . . . . . 74
4.3.3 Allocation of Reserve Energy Costs . . . . . . . . 75
4.4 Simulation Setup . . . . . . . . . . . . . . . . . . . . . . 78
4.4.1 Test System . . . . . . . . . . . . . . . . . . . . . 78
4.4.2 Benchmark Approaches . . . . . . . . . . . . . . 81
4.5 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.5.1 Recovery of Capacity and Energy Costs . . . . . 84