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Creation & Implementation of a Market Design            for Ancillary Services                      Conference on   The Ne...
Presentation structure• Expected Ancillary Services (AS) Mechanism in India• Key aspects of Ancillary Services Market Desi...
Expected Ancillary Services (AS) Market Structure in India•   Phase I (As proposed by NLDC)     – Under phase – I only one...
Expected AS Market Structure in India: Triggering of FSAS    50.10                                                   •   S...
Expected AS Market Structure in India :Day Ahead Bid process and dispatch                                          Power  ...
Expected AS Market Structure in India : Payment Mechanism                                         Utilities/Ent       Powe...
Key aspects of Ancillary Services Market DesignMode of Procurement     Mandatory, Bilateral, Competitive Bids, Spot Market...
Procurement methods used in AS markets• Countries follow different approaches in procuring Ancillary Services• Ancillary S...
Procurement of Ancillary Services in Select Markets1SN      Ancillary Service               Compulsory provision          ...
Pricing Ancillary Services• Regulators have different approaches for pricing Ancillary Services such as  mandating ancilla...
Pricing method used in various countries1 S.     Ancillary Service                    None                Regulated       ...
Uniform Pricing Versus Pay-as-Bid PricingMarginal Cost of A         Uniform Price Auction1                   Total Consume...
Issues in Uniform Pricing model for multi product FCAS•   Multiple products under FCAS (from Regulation to Replacement) ca...
Tariff Structure for Phase-1: Multi Part Vs Single Part•   Multi Part: Typically - Capacity charges + Usage charges•   Mul...
Tenures of Ancillary ServicesIndicative tenures for Phase-1   Indicative tenures for Phase-2• Day ahead markets           ...
There is a need for effective monitoring by regulators•     Risk of cartel formation: It is known that markets for Voltage...
Thank You
Prepared for IPPAI byICRA Management Consulting Services LimitedFor further details, please contactR. Raghuttama RaoMD, IM...
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Creation & Implementation of a Market Design for Ancillary Services

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Creation & Implementation of a Market Design for Ancillary Services

  1. 1. Creation & Implementation of a Market Design for Ancillary Services Conference on The Need for Regulatory & Policy Framework for Ancillary Services & Alternative Energy Options In the Indian Power Scenario Organized by Independent Power Producers Association of India Knowledge Partner ICRA Management Consulting Services limited New Delhi April 11, 2013
  2. 2. Presentation structure• Expected Ancillary Services (AS) Mechanism in India• Key aspects of Ancillary Services Market Design• Mode of Procurement• Price discovery• Tariff structure• Duration of contracts• Effective monitoring 2
  3. 3. Expected Ancillary Services (AS) Market Structure in India• Phase I (As proposed by NLDC) – Under phase – I only one service under Frequency Support Ancillary Service (FSAS) is expected to be launched , limited to generation side services.• Phase II (Expected) – Frequency Control Ancillary Services • Primary (Local automatic control: generators and loads) • Secondary (Central automatic control: generators) • Tertiary (Manual control: generators and loads) – Network Control Ancillary Services (NCAS) • Voltage Control Ancillary Services (NCAS) • Power Flow Control Ancillary Services (NCAS) – System Restart Ancillary Service (SRAS) 3
  4. 4. Expected AS Market Structure in India: Triggering of FSAS 50.10 • SLDCs are apex bodies responsible for optimum scheduling and despatch of 50.00 electricity at a state level Target Grid 49.90 Frequency • SLDCs/Utilities would have a window of time to balance load and generation before FSAS This range provides 49.80 flexibility to utilities kicks in at a specified frequency (say, 49.65 to take corrective Hz) if they do not intend to procure energy actions to balance from the AS market 49.70 load and generation Trigger point for • For example, an over drawl / loss of 49.65 generation of about 700 MW would result in Ancillary Services drop from 50 Hz to 49.65 Hz in the NEW-NE 49.60 grid• Power Number is the sustained change in MW of load-generation balance that result s in a change in frequency of 1 Hz. • FSAS process would be initiated by NLDC at• Power Number for the NEW-NE grid is about 2000 the specified frequency MW per Hz. 4
  5. 5. Expected AS Market Structure in India :Day Ahead Bid process and dispatch Power Accredited NLDC Exchanges Generators 1 Forecast the Required 2 Conducts Day Ahead Bid for providing Ancillary Quantity (MW) - Tentative Bidding 3 Services Notify withdrawal (if any) at Notifies anonymous area- least 3 hours before 6 5 wise bids to NLDC 4 dispatch Dispatch notification of selected bids 6 time Notifies bidders 7 blocks prior to dispatch immediately about the bids 9 Supply Power Provides complete details of 8 the bidders 5
  6. 6. Expected AS Market Structure in India : Payment Mechanism Utilities/Ent Power AS Power RLDC RPC ities Exchanges Generators 31 Computation Obtains data of UI and ancillary payment2 7 Energy AS Charges / Accounting 5 Make Penalties(MU) based on 4 Notifies payment for scheduled & drawls underactual dispatch payment UI & AS to UI 8 information AS Charges / Account Penalties6 Payment from UI Pool Account 6
  7. 7. Key aspects of Ancillary Services Market DesignMode of Procurement Mandatory, Bilateral, Competitive Bids, Spot MarketPrice discovery Pay as bid, Uniform pricing, Normative tariffTariff structure Fixed, Capacity, Utilization, Utilization Frequency, Opportunity CostDuration of contracts Short term, Long termEffective monitoring To ensure fair competition, Price cap 7
  8. 8. Procurement methods used in AS markets• Countries follow different approaches in procuring Ancillary Services• Ancillary Service requirement is typically estimated by ISO• Ancillary Services such as Primary Frequency Control (through speed governors) and Basic Voltage Control are mandated by the regulators in some countries /markets• Secondary and Tertiary Frequency controls are procured through tendering process or through spot market by the ISO or through bilateral contracts by utilities.• Black Start or System Restart services are procured through competitive bidding where it is not mandatory. 8
  9. 9. Procurement of Ancillary Services in Select Markets1SN Ancillary Service Compulsory provision Bilateral Tendering Spot market contracts process1 Primary frequency Spain, PJM Australia, Germany, Great Australia, New control France, New Britain, New Zealand Zealand Zealand, Sewden2 Secondary - France Germany, New Australia, Spain, frequency control Zealand PJM3 Basic voltage control Australia, Spain, Germany, France, New Great Britain - France, Great Britain, New Zealand Zealand, PJM, Sewden4 Enhanced voltage - France, Australia, Spain, - control Germany Great Britain 1. Based on Paper by Rebours, Kirschen, Trotignon and Rossignol – A Survey of Frequency and Voltage Control Ancillary Services - Part II: Economic Features 9
  10. 10. Pricing Ancillary Services• Regulators have different approaches for pricing Ancillary Services such as mandating ancillary services with no explicit cost, a regulated (normative) price , uniform pricing and pay as bid price• In Uniform pricing method, all successful bidders are paid the price of highest bid accepted• In Pay as bid pricing bidders are paid at the price they have bid• Most of the US markets use uniform pricing for frequency control ancillary services• Countries such as Great Britain , France and Germany have adopted pay as bid pricing• CERC’s consultation paper (2010) has suggested uniform pricing for Ancillary Services in India 10
  11. 11. Pricing method used in various countries1 S. Ancillary Service None Regulated Pay as bid price CommonNo. Price Clearing Price1 Primary frequency Spain, PJM New Australia, France, Germany, Australia control Zealand Great Britain, New Zealand, Sewden2 Secondary - - Australia, Spain, PJM, France, Australia, Spain, frequency control Germany, New Zealand, PJM Great Britain, Sewden3 Basic voltage control Australia, Spain, PJM, Great France, Great Britain, New - Germany, Sewden Britain Zealand4 Enhanced voltage - Spain Australia, France, Germany, - control Great Britain 1. Based on Paper by Rebours, Kirschen, Trotignon and Rossignol – A Survey of Frequency and Voltage Control Ancillary Services - Part II: Economic Features 11
  12. 12. Uniform Pricing Versus Pay-as-Bid PricingMarginal Cost of A Uniform Price Auction1 Total Consumer Demand Pay as Bid Auction1 7 7 Uniform Market Clearing Price Average Price 6 6 5 5 $/MWh $/MWh 4 4 3 3 2 2 1 1 0 0 A B C D E F B D C E F A MW MW • Proponents for uniform pricing argue that under competitive conditions, market prices are unlikely to be different between uniform price and pay-as-bid price; as utilities may bid higher than their marginal cost in pay-as-bid price1 • Theoretically, Pay-as-bid price is effective incase utilities bid based on their marginal cost 1. Source - Uniform-Pricing versus Pay-as-Bid in wholesale Electricity Markets : NYISO 12
  13. 13. Issues in Uniform Pricing model for multi product FCAS• Multiple products under FCAS (from Regulation to Replacement) can be procured either sequentially or simultaneously. (Relevant for Phase-2 in India)• Under Uniform Pricing model, sequential bidding may result in adverse selection where a better quality resource (e.g. Regulation reserve) is priced lower than a poor quality resource (e.g. Replacement reserve). Such a situation is called “Price Reversal”.• To address “Price Reversal”, California market has implemented simultaneous bidding with rational buyer approach. Rational buyer approach minimizes the overall procurement cost while considering technical constraints.• Incase of Pay as bid approach, both sequential and simultaneous bidding did not show any such adverse impacts. 13
  14. 14. Tariff Structure for Phase-1: Multi Part Vs Single Part• Multi Part: Typically - Capacity charges + Usage charges• Multi Part system is more common across the world• Bids for Ancillary Services are selected based on their capacity charges and dispatched based on their “usage charges” in real-time• Multi Part structure is likely to make Ancillary Services more bankable as it would mitigate the risk of non- off take of power• Single Part tariff may get easier agreement from the discoms who would ultimately pay for the Ancillary Services 14
  15. 15. Tenures of Ancillary ServicesIndicative tenures for Phase-1 Indicative tenures for Phase-2• Day ahead markets • Day ahead & Intra-day markets – FSAS – FCAS: Regulation services – FCAS: Spinning reserve • Monthly contracts – FCAS: Backup reserves • Long term contracts – SRAS: System Restart – VCAS: Voltage Control Services 16
  16. 16. There is a need for effective monitoring by regulators• Risk of cartel formation: It is known that markets for Voltage Control suffer from high market concentrations because of location specific requirement.• During 2010, Italian Competition Authority has fined three generating plants providing VCAS in the Central – South Zone who were found to be acting in cartel.• Price caps: In specific cases, regulators may impose price caps• Price reversals: It is required to identify price reversals and correct design flaws. In a price reversal situation an inferior quality service (e.g. Secondary Reserve) may receive a higher price than a higher quality service (e.g. Regulation)• Such reversal was witnessed in California, New England and New York markets. 17
  17. 17. Thank You
  18. 18. Prepared for IPPAI byICRA Management Consulting Services LimitedFor further details, please contactR. Raghuttama RaoMD, IMaCSraghuttama.rao@imacs.in 19

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