The system operator needs some resources to maintain the operational reliability of the system and that some of these resources must be obtained from other industry participants in the form of ancillary services.

 

At this point, we need to examine the two mechanisms that can be used to ensure that the system operator has at its disposal the resources that are required.

 

The first approach consists in making the provision of some resources compulsory.

 

The second entails the creation of markets for different resources.

 

As we will see, both approaches have advantages and disadvantages.

 

The choice of one mechanism over the other is influenced not only by the type of resource but also by the nature of the power system and historical circumstances.

 

Compulsory Provision

 

In this approach, as a condition for being allowed to connect to the power system, a category of industry participants is required to provide some resources. For example, connection rules may require all generating units:

 

* - To be equipped with a governor with a 4% droop coefficient. This requirement ensures that all units contribute equally to frequency regulation.

 

* - To be capable of operating at a power factor ranging from 0.85 lead to 0.9 lag and be equipped with an automatic voltage regulator. This forces all units to participate in voltage regulation and contribute to voltage stability.

 

This approach represents the minimum deviation from the practice of vertically integrated utilities. It also guarantees that sufficient resources will be available to maintain the operational reliability of the system.

 

While compulsion is apparently simple, it is not necessarily good economic policy and presents some implementation difficulties:

 

* - These mandates may cause unnecessary investments and produce more resources than what is actually needed. For example, not all generating units need to take part in frequency control to maintain the stability of the system. Similarly, not all generating units need to be equipped with a power system stabilizer to dampen system oscillations.

 

* - This approach does not leave room for technological or commercial innovation. New, more efficient ways of providing a service are unlikely to be developed by industry participants or sought by the system operator if traditional providers are compelled to offer this service.

 

* - Compulsion tends to be unpopular among providers because they feel that they are forced to supply a service that adds to their costs without being remunerated. For example, generating companies complain that producing reactive power increases the losses in the synchronous machine and sometimes reduces the amount of active power that they are able to produce and sell.

 

Creating a Level-playing Field

 

Before the introduction of competition in the supply of electricity, generating units owned by vertically integrated utilities provided virtually all the resources needed to ensure reliability. Unfortunately, the definitions of ancillary services in many electricity markets still reflect this practice.

 

In a truly competitive environment, the system operator should have no obligation or incentive to favor generators in the procurement of reliability resources as long as other providers are able to deliver services of the same quality. Encouraging consumers and others (such as owners of energy storage systems) to offer reliability resources has several advantages.

 

First, a larger number of providers should increase competition in these markets.

 

Second, from a global economic perspective, participation by the demand side improves the utilization of the assets. For example, if interruptible loads or storage devices provide some of the reserve requirements, generation capacity does not have to be held in reserve. These generating units can then be used for producing electrical energy, which is what they were designed for. If the mix of generation technologies continues to evolve toward a combination of large inflexible units and renewable generation, resources for system control may have to come from the demand side.

 

Finally, diversifying the provision of resources is likely to enhance the reliability of the system. The probability that a larger number of providers may simultaneously fail to deliver a critical service in time is indeed smaller than if this service is provided by a small number of large generators.

 

The demand side is probably most competitive in the provision of the different types of reserve services. Some consumers (for example, those who have large water pumping loads equipped with variable speed drives) might also be able to compete for the provision of regulation. The flexibility of pumped hydro plants makes them very competitive in the provision of regulation and reserve services. Battery energy storage systems (BESS) are also increasingly deployed to provide these services. Being connected to the grid through a power electronics interface, they have the advantage of being able to respond extremely fast. On the other hand, their relatively small energy capacity limits their ability to respond to a generation deficit for a sustained period of time.

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