Impact of different reserve cost allocation mechanisms on market participants’ revenues: a quantitative analysis

Abstract

Insufficient flexibility is a major barrier to the development of new power systems. Leveraging the resource allocation function of the electricity market is a promising way to enhance the flexibility of power systems and promote the consumption of renewables. The reasonable allocation of ancillary service costs plays a pivotal role in this function. Towards the target of “who causes, who shares,” various research related to cost allocation has been conducted. However, there is a lack of quantitative analysis of the impact of different cost allocation mechanisms on the market participants’ revenues. Whether various cost allocation mechanisms can alleviate the insufficient flexibility problem of power systems needs to be validated. With this in mind, taking operating reserve ancillary services as an example, a long-term market operation simulation model with energy-reserve joint clearing is established in this paper based on the time series production simulation. According to this, the revenues of market participants under different reserve cost allocation mechanisms are quantified. Besides, a self-dispatch model for the energy storage (ES) equipped by renewables is established, based on which the impact of ES on the revenues of renewables under different cost allocation mechanisms is analyzed. Case studies based on practical data from a provincial power grid in China demonstrate that with the well-designed reserve cost allocation mechanism, the revenues of flexible resources can be ensured. Meanwhile, renewables are incentivized to reduce their fluctuations and uncertainties by equipping the ES. Hence, the insufficient flexibility problem of power systems can be alleviated from both supply and requirements perspectives.