ANCILLARY SERVICES. A Paper for PPC. Establishment Organisation and Pilot Operation of the HTSO. 21 September 2000

Transcription

1 ANCILLARY SERVICES A Paper for PPC Establishment Organisation and Pilot Operation of the HTSO 21 September 2000

2 TABLE OF CONTENTS 1. INTRODUCTION 1 2. SYSTEM TRADING ARRANGEMENTS 2 3. OPTIONS FOR PROCUREMENT 3 4. DEFINITIONS OF ANCILLARY SERVICES 5 5. PAYMENTS AND PENALTIES 7 6. RECOVERY OF ANCILLARY SERVICES COSTS 10 ATTACHMENT 1 11 Ref:C:\Dennis\WINWORD\Greek TSO\Tasks\Task 4 Agreements and Codes\3 2 Anc Servs Agmt\ AS paper Final.doc

3 Introduction 1. INTRODUCTION This paper has been prepared to provide further background and elaboration on ancillary service provision. The aim is to review ancillary service provision elsewhere and explain the inter-face between the Power Exchange Code and ancillary service provision in Greece. The Ancillary Services we expect to be required at the beginning of the System Trading Arrangements (STA) include: Automatic generation control (AGC); Reserves; Reactive power; and Black Start. This paper should be read in conjunction with the second draft of the Ancillary Services Agreement (dated 12 September). 1

4 System Trading Arrangements 2. SYSTEM TRADING ARRANGEMENTS Ancillary Services are those services required to maintain a stable frequency and voltage on the transmission system and to provide Black Start capability. Under the System Trading Arrangements (STA), HTSO is responsible for procuring and using these services in its scheduling and dispatch of generation and in its use of the transmission system. All Ancillary Services costs are passed through to Purchasers. The assumption made in the market framework is that Ancillary Services are provided through agreements rather than short-term markets. 1,2 Ancillary Services agreements, which are outside of the STA, determine who is obliged to provide Ancillary Services, the terms under which they must be provided, including the terms under which they are paid. Ancillary Service Providers are required to declare their capability to provide each contracted service by 12:00 of the day-ahead of the Dispatch Day. It is the responsibility of the Ancillary Service Provider concerned to ensure that such declarations comply with the terms of its Ancillary Service agreement(s). On an on-going basis, HTSO would select the actual hour-to-hour providers of Ancillary Services from those sources declared as available, adhering to the principles of a least-cost and security constrained operation of the system, and in accordance with the methods specified in the Operating Code and Ancillary Services Agreements. Ancillary Service Providers are selected day-ahead in the constrained forecast schedule, although the provision of Ancillary Services may be subsequently modified by HTSO prior to the Dispatch Hour if need be. 1 The terms of reference for this project refer to preparation of agreements relating to the physical and financial operation of the system (not falling into the Operating Code and Power Exchange Code), including an Ancillary Services Agreement. 2 It is anticipated that, to begin with and for a number of years, the parties to the Ancillary Services Agreements will be HTSO and the PPC generators currently providing the services. However, if the contract duration is mediumterm or less (perhaps three to five years), then within a reasonable time frame, new entrants into the Greek electricity industry will have the opportunity to compete for provision of these services through an open tendering process for new contracts. 2

5 Options for Procurement 3. OPTIONS FOR PROCUREMENT Where the system operator arranges Ancillary Services through centralised procurement, they can be purchased by way of contracts, short-term markets, or a combination of both. As mentioned previously, the assumption made in this case is that, at least initially, Ancillary Services are procured through contracts. We support this assumption on the basis that most of the costs of the system are in the wholesale trading of electricity and congestion management. Ancillary Services should be a relatively small portion of the costs, and the savings from implementing Ancillary Services markets (that track costs more precisely than long term contracts) may not be large. Ancillary Services markets require major input to develop, are difficult to implement effectively, 3 and there is no off-the-shelf system that can be readily adopted. As set out in Table 1, there is no dominant model for the procurement of Ancillary Services among other countries that have reformed their electricity industries. The spot markets that exist have been susceptible to market power, for example in California. International experience suggests that if markets for Ancillary Services are to be adopted, they should be phased in gradually. While there is a trend toward market-based contracts for some services, cost-based contracts have been perceived as a good starting point to evolve into market-based contracting. With little competition, cost-based contracting, where the value of the services is not known or proven, has been standard. Table 1: Procurement of Ancillary Services England & Wales California (USA) Spain Australia New Zealand New England (USA) Short-term Markets for Ancillary Services scheduled Part of the dayahead schedule for generation. regulation spinning non-spinning replacement Day-ahead market and hour-ahead market. Offers submitted simultaneously. secondary tertiary Day-ahead market. Under consideration. frequency control Week-ahead market on a halfhourly basis. instantaneous hourly market. 4 day-ahead markets, on an hourly basis. 3 The market in New England has been re-designed and in California the Rational Buyer protocol has been adopted, under which the TSO is given the option of purchasing higher quality services if they are cheaper than lower quality services. In both cases Ancillary Services are arranged after generation units are scheduled in the energy market (rather than at the same time). 3

6 Options for Procurement England & Wales California (USA) Spain Australia New Zealand New England (USA) Long-term Contracts for Ancillary Services (not scheduled) Contracts for 2 months to 2 years. voltage support and black start Paid under contracts (generally 1 year) at cost based rates. Under discussion for voltage support and black start. Long-term contracts cover all ancillary services. They were established thorough tenders except where market power existed and the price was negotiated. voltage control 3 year take-or-pay bilateral contracts for synchronous condensors. over frequency arming black start Annual tender Under discussion for voltage support and black start. Timing of Ancillary Services Market Relative to the Energy Market scheduled is simultaneous to the day-ahead energy market. All other services contracted in advance and therefore precede the energy market. Use is determined on the day. Ancillary services markets are cleared, one after the other, after the energy market. Ancillary services markets are cleared after the energy market and the transmission constraints market. Long-term contracts cover all ancillary services and therefore precede the energy market. market is simultaneous to the energy market All others precede the energy market. The 4 day-ahead markets are cleared, one after the other, after the energy market. 4

7 Definitions of ancillary Services 4. DEFINITIONS OF ANCILLARY SERVICES Reliability standards, local conditions and historical operation of the system will determine the precise definitions of the Ancillary Services utilised by HTSO to maintain system reliability. However, these services will likely fall into the following groups: Frequency control: fast response to fluctuations in frequency achieved either through governor action and/or by use of AGC. Reserves: several types of are usually required to maintain system security. The definition of these services varies according to the required time frame for response and duration of response. The types of s used will in part depend on the generation mix and security standards. Voltage control: which can be provided by either dynamic sources or static sources. Black start: arrangements to restore the transmission system following an outage. In Greece, the definitions of Ancillary Services, set out in the Operating Code, will conform to the requirements of UCTE. In general, provision of a certain level of specific Ancillary Services is mandatory. 4 This may be put into effect through either a condition in the generation authorisation or as a condition in the Operating Code. Such service provision may be compensated or uncompensated. However, where provision of an Ancillary Service involves additional costs (fixed and/or variable), it is preferable to offer some compensation, as this gives an incentive for the service to be provided effectively and efficiently. It is envisaged that the generation authorisations in Greece will contain a requirement to comply with the Operating Code (as well as other agreements and codes). Under the current draft of the Operating Code, provision of a specific level of a number of Ancillary Services forms part of the conditions for connection to the system. However, it is important to note that some plant will be eligible for derogations from certain requirements of the Operating Code. 4 See Table 2 5

8 Definitions of ancillary Services Table 2: Mandatory Provision of Ancillary Services England and Wales primary response, secondary response, reactive power other than from static var compensators and synchronous condensors California (USA) basic reactive power standards for connection to the system Spain primary, voltage control, black start Australia governor control, basic reactive power standards for connection to the system New Zealand some level of frequency control, basic reactive power standards for connection to the system New England (USA) governor control, voltage support, black start 6

9 Payments and Penalties 5. PAYMENTS AND PENALTIES When the provision of Ancillary Services is compensated, payments are arranged so that they at least cover the estimated cost of providing the services, whether they are cost-based or based on a market price. When there are enough providers of the service for the market to be competitive, the buyer usually pays a market price. Where service providers have market power, then payments usually need to be cost-based to avoid abuse of that market power. We propose that in the absence of any non-ppc owned generation at the beginning of the STA, and given that the value of Ancillary Services is currently unknown, payments for Ancillary Services should be cost-based. In general, Ancillary Service providers are paid a capability or availability payment for keeping generation capacity available to provide the service (if that is the case) and a usage or energy payment if generation output is dispatched from the plant. That is, total payments are usually a combination of fixed and variable payments. These payments reflect the costs of providing Ancillary Services: the costs of keeping a generator standing in preparation for being dispatched and the actual costs of generating additional output when dispatched by the system operator. Table 3 sets out the structure of Ancillary Services payments in a number of countries. Our proposals for the form of remuneration of Ancillary Services in Greece are set out in Table 4. In addition, in most markets, generators are compensated for the opportunity cost arising from any reduction in generation output when providing Ancillary Services. This payment is designed to make the generator indifferent between providing ancillary services and being dispatched to provide energy. In Greece, under the Power Exchange Code, any inmerit generator who is despatched below its offered capacity will receive a payment through the Power Exchange Code equal to the difference between SMP and its offer price (its lost profit ) for the reduced output. Attachment 1 sets out in detail the payments that will be made to generators offering capacity into the STA under Ancillary Services agreements for and AGC. 7

10 Payments and Penalties Table 3: Structure of Ancillary Services Payments England & Wales California (USA) Spain Australia New Zealand New England (USA) For each ancillary service, the payments are a combination of availability and utilisation charges. For reactive power, since April 2000, the fixed capacity portion has been set to zero and payment is on the basis of actual MVAr generated. regulation spinning non-spinning replacement scheduled: market clearing price for capacity (subject to a price cap) dispatched: realtime ex-post energy price voltage control black start availability: fixed cost payment (monthly) dispatched: variable operating cost secondary availability: price for capacity dispatched: price for tertiary market tertiary availability: there is no payment for capacity dispatched: price for tertiary market For each ancillary service the payments for every half hour are a combination of payments predetermined by contract, including: availability: covering fixed costs enabling: covering the cost of keeping the unit ready to provide the service usage: paid when service is provided compensation: payment for being constrained on or off in the energy market in order to provide the ancillary service. frequency control availability: price for capacity dispatched: energy spot price instantaneous availability: price for dispatched: energy spot price over frequency arming availability: priced in the contract voltage control take-or-pay contracts based on the winning bid. Generators can be constrained on to provide voltage support when they will receive the market price for energy plus a premium based on the opportunity cost black start availability AGC 10 min spinning price for providing the service plus the opportunity cost of not providing energy prices are capped at the energy price 10 min non spinning price for providing the service 30 min operating price for providing the service voltage price for providing the service plus compensation for being constrained on if their energy offer was above the market clearing price Table 4: Proposed Structure of Payments for Ancillary Services in Greece Frequency control Fixed and variable payments for AGC Reserves Variable payments for spinning Fixed and variable payments for standing Voltage control Fixed and variable payments for reactive power Black start Fixed payments for availability 8

11 Payments and Penalties In setting the penalties to apply when an Ancillary Service provider fails to provide the contracted level of service, two issues need to be addressed. The first is the desirability of balancing payments and penalties so that penalties provide an effective sanction without deterring a generator from signing an Ancillary Services Agreement in the first place. The second is the need to reflect the costs to the system arising out of the failure to provide the service. 9

12 Recovery of Ancillary Services costs 6. RECOVERY OF ANCILLARY SERVICES COSTS Having procured Ancillary Services on behalf of the users of the transmission system, the HTSO will need to recover the costs of those services through charges to transmission users. A number of charging options have been used in markets around the world. In England and Wales costs are recovered through a generic uplift charge covering a number of cost items. Explicit ancillary service charges are set in California. In New England, voltage control services are charged for as part of the transmission tariff. Charges are usually levied on the load, on an average cost basis, as it is difficult to identify which customers use more or less of a particular service. Most countries have not attempted to identify for charging purposes the particular beneficiaries or those causing the need for Ancillary Services of the services. In England and Wales, the system operator faces incentives to minimise Ancillary Services costs. The regulator gives the system operator a target for controllable Ancillary Services costs and the SO is permitted to retain a defined proportion of any under-spend. Non-controllable costs are passed through to suppliers. Under the present proposals for the STA, Ancillary Services costs in Greece will be carried to the Uplift account and passed through to all Purchasers on a per MW basis. It would, however, be an option for the regulator to impose an incentive on the HTSO to control the total costs of Ancillary Services. 10

13 Attachment 1 ATTACHMENT 1 Reserve Ancillary Services Summary of Proposed Payments to Plant Offering Capacity into the Trading Arrangements I Plant Scheduled Day Ahead or Subsequently Called to Run A Plant Not Called to Run A1. Plant Not Started No PEC Payment. May receive a Standing Reserve Payment under an ASA, and AGC fixed payment if appropriate. A2. Plant Started but not Synchronised PEC pays Start-up Costs. Plant may also receive a Reserve Payment under an ASA, and AGC fixed payment if appropriate.. B. Plant Called to Run, but for less than Offered Capacity B1. Plant is despatched for AGC and is able to provide Spinning Reserve. B2. Plant is despatched for AGC but is not able to provide Spinning Reserve. B3. Plant has no AGC capability, but is able to provide Spinning Reserve. B4. Plant has no AGC capability and is not able to provide Spinning Reserve. C. Plant Called to Run to Full Offered Capacity C1. Plant has AGC capability, but not despatched for AGC. C2. Plant has no AGC capability but able to meet Spinning Reserve Requirements. C3. Plant has no AGC capability and not able to meet Spinning Reserve Requirements. PEC pays for energy and lost profit on reduced output (SMP-Offer Price). Also receives AGC fixed and variable payments under ASA, and may receive Reserve Payment under ASA. PEC as B1. Also receives AGC fixed and variable payments under ASA. PEC as B1. May also receive Reserve Payment under ASA. PEC as B1. No ASA payments. II Plant Not Scheduled Day Ahead and Not Told to Run PEC pays for energy. Also receives AGC fixed payment under ASA. PEC pays for energy. Does not receive any Reserve Payment. PEC pays for energy. Does not receive any Reserve Payment. All cases No PEC Payments. May receive payments for AGC capability under ASA where applicable. No other ASA payments. 11