Automatic Generation Control Ancillary Service Cost-Allocation Methods Based on Causer-Pays Principle in Electricity Market

The electric power system is rapidly transforming to address the urgent need for decarbonization and combat climate change. Integration of renewable energy sources into the power grid is accelerating, creating new challenges such as intermittency and uncertainty. To address these challenges, this paper proposes a new design of automatic generation control (AGC) ancillary service cost allocation based on the causer-pays rule. The proposed design treats reserves as inventory and aims to minimize them by allocating costs among consumers based on the causative factors for AGC operation. Two cost-allocation methods based on the causer-pays principle are introduced. The first method distributes costs according to the changes in loads causing ancillary service operation, while the second method considers opportunity costs. The case study on the IEEE 39 Bus System demonstrates that the proposed methods incentivize consumers to minimize volatility, resulting in reduced reserve requirements for system operation. In particular, the opportunity cost-based approach encourages loads and variable renewable energy (VRE) to actively reduce volatility, resulting in more efficient power system operation. In conclusion, the novel AGC ancillary service cost allocation methods offer a promising strategy for minimizing spinning reserves, increasing the power system’s efficiency, and incentivizing consumers to actively participate in frequency regulation for a more sustainable and reliable electricity market.