IDEAS home Printed from https://ideas.repec.org/a/sae/enejou/v41y2020i1_supplp5-32.html
   My bibliography  Save this article

Competition in Markets for Ancillary Services? The Implications of Rising Distributed Generation

Author

Listed:
  • Michael G. Pollitt
  • Karim L. Anaya

Abstract

Ancillary services are electricity products which include balancing energy, frequency regulation, voltage support, constraint management and reserves. Traditionally they have been procured by system operators from large conventional power plants, as by-products of the production of energy. This paper discusses the use of markets to procure ancillary services in the face of potentially higher demand for them, caused by rising amounts of intermittent renewable generation. We discuss: the nature of markets for ancillary services; what we really mean by ancillary services; how they are impacted by the rise of distributed generation; how they are currently procured; how they relate to the rest of the electricity system; the current state of evidence on ancillary services markets; whether these markets ever be as competitive as conventional wholesale energy markets, and offer some conclusions.

Suggested Citation

  • Michael G. Pollitt & Karim L. Anaya, 2020. "Competition in Markets for Ancillary Services? The Implications of Rising Distributed Generation," The Energy Journal, , vol. 41(1_suppl), pages 5-32, June.
    • Handle: RePEc:sae:enejou:v:41:y:2020:i:1_suppl:p:5-32
    DOI: 10.5547/01956574.41.SI1.mpol
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.5547/01956574.41.SI1.mpol
    Download Restriction: no
    File URL: https://libkey.io/10.5547/01956574.41.SI1.mpol?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cappers, Peter & MacDonald, Jason & Goldman, Charles & Ma, Ookie, 2013. "An assessment of market and policy barriers for demand response providing ancillary services in U.S. electricity markets," Energy Policy, Elsevier, vol. 62(C), pages 1031-1039.
    2. Michael G. Pollitt, 2019. "The European Single Market in Electricity: An Economic Assessment," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(1), pages 63-87, August.
    3. Kim, S. & Pollitt, M. & Jin, Y. & Yoon, Y., 2017. "Contractual Framework for the Devolution of System Balancing Responsibility from the Transmission System Operator to Distribution System Operators," Cambridge Working Papers in Economics 1738, Faculty of Economics, University of Cambridge.
    4. Anna Cretì & Fulvio Fontini, 2019. "Economics of Electricity. Markets, Competition and Rules," Post-Print hal-02304345, HAL.
    5. Cretì,Anna & Fontini,Fulvio, 2019. "Economics of Electricity," Cambridge Books, Cambridge University Press, number 9781107185654, September.
    6. Küfeoğlu, S. & Liu, G. & Anaya, K. & Pollitt, M., 2019. "Digitalisation and New Business Models in Energy Sector," Cambridge Working Papers in Economics 1956, Faculty of Economics, University of Cambridge.
    7. Furtwängler, Christian & Weber, Christoph, 2019. "Spot and reserve market equilibria and the influence of new reserve market participants," Energy Economics, Elsevier, vol. 81(C), pages 408-421.
    8. Sinan Küfeoglu & Michael Pollitt & Karim Anaya, 2018. "Electric Power Distribution in the World: Today and Tomorrow," Working Papers EPRG 1826, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    9. Anthony PAPAVASILIOU & Yves SMEERS, 2017. "Remuneration of flexibility using operating reserve demand curves: a case study of Belgium," LIDAM Reprints CORE 2900, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Kristof De Vos & Nicolas Stevens & Olivier Devolder & Anthony Papavasiliou & Bob Hebb & James Matthys-Donnadieu, 2019. "Dynamic dimensioning approach for operations reserves: proof of concept in Belgium," LIDAM Reprints CORE 2993, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. Greve, Thomas & Teng, Fei & Pollitt, Michael G. & Strbac, Goran, 2018. "A system operator’s utility function for the frequency response market," Applied Energy, Elsevier, vol. 231(C), pages 562-569.
    12. Friedrich Kunz, 2013. "Improving Congestion Management: How to Facilitate the Integration of Renewable Generation in Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    13. Chyong, C. & Pollitt, M. & Cruise, R., 2019. "Can wholesale electricity prices support “subsidy-free” generation investment in Europe?," Cambridge Working Papers in Economics 1955, Faculty of Economics, University of Cambridge.
    14. Paul L Joskow, 2019. "Challenges for wholesale electricity markets with intermittent renewable generation at scale: the US experience," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(2), pages 291-331.
    15. Bert Willems, 2002. "Modeling Cournot Competition in an Electricity Market with Transmission Constraints," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 95-125.
    16. Banshwar, Anuj & Sharma, Naveen Kumar & Sood, Yog Raj & Shrivastava, Rajnish, 2018. "An international experience of technical and economic aspects of ancillary services in deregulated power industry: Lessons for emerging BRIC electricity markets," Renewable and Sustainable Energy Reviews, Elsevier, vol. 90(C), pages 774-801.
    17. Mount, Timothy D. & Ju, Jaeuk, 2014. "An econometric framework for evaluating the efficiency of a market for transmission congestion contracts," Energy Economics, Elsevier, vol. 46(C), pages 176-185.
    18. Sebastian Just, 2011. "Appropriate contract durations in the German markets for on-line reserve capacity," Journal of Regulatory Economics, Springer, vol. 39(2), pages 194-220, April.
    19. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-242, September.
    20. Johannes Mauritzen, 2015. "Now or Later? Trading Wind Power Closer to Real Time And How Poorly Designed Subsidies Lead to Higher Balancing Costs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    21. R. G. Lipsey & Kelvin Lancaster, 1956. "The General Theory of Second Best," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 24(1), pages 11-32.
    22. Moarefdoost, M. Mohsen & Lamadrid, Alberto J. & Zuluaga, Luis F., 2016. "A robust model for the ramp-constrained economic dispatch problem with uncertain renewable energy," Energy Economics, Elsevier, vol. 56(C), pages 310-325.
    23. William W. Hogan, 1993. "Markets in Real Electric Networks Require Reactive Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 171-200.
    24. Anthony Papavasiliou & Yves Smeers, 2017. "Remuneration of Flexibility using Operating Reserve Demand Curves: A Case Study of Belgium," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Geßner, Daniel, 2024. "Rethinking renewable energy policies for hydrogen: How the intercept of electricity and hydrogen markets can be addressed," W.E.P. - Würzburg Economic Papers 111, University of Würzburg, Department of Economics.
    2. David P. Brown & Andrew Eckert & Douglas Silveira, 2023. "Strategic interaction between wholesale and ancillary service markets," Competition and Regulation in Network Industries, , vol. 24(4), pages 174-198, December.
    3. Pollitt, Michael G. & von der Fehr, Nils-Henrik M. & Willems, Bert & Banet, Catherine & Le Coq, Chloé & Chyong, Chi Kong, 2024. "Recommendations for a future-proof electricity market design in Europe in light of the 2021-23 energy crisis," Energy Policy, Elsevier, vol. 188(C).
    4. Luigi Viola & Saeed Nordin & Daniel Dotta & Mohammad Reza Hesamzadeh & Ross Baldick & Damian Flynn, 2023. "Ancillary Services in Power System Transition Toward a 100% Non-Fossil Future: Market Design Challenges in the United States and Europe," Papers 2311.02090, arXiv.org.
    5. Tangerås, Thomas, 2020. "Competition for Flexible Distribution Resources in a ’Smart’ Electricity Distribution Network," Working Paper Series 1351, Research Institute of Industrial Economics.
    6. Liu, Tingting & Chen, Zhe & Xu, Jiuping, 2022. "Empirical evidence based effectiveness assessment of policy regimes for wind power development in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 164(C).
    7. Milstein, I. & Tishler, A. & Woo, C.K., 2024. "The effect of PV generation's hourly variations on Israel's solar investment," Energy Economics, Elsevier, vol. 136(C).
    8. Simshauser, P., 2021. "Renewable Energy Zones in Australia’s National Electricity Market," Cambridge Working Papers in Economics 2119, Faculty of Economics, University of Cambridge.
    9. Prakash, Abhijith & Bruce, Anna & MacGill, Iain, 2022. "Insights on designing effective and efficient frequency control arrangements from the Australian National Electricity Market," Renewable and Sustainable Energy Reviews, Elsevier, vol. 161(C).
    10. Tim Schittekatte & Valerie Reif & Leonardo Meeus, 2021. "Welcoming New Entrants into European Electricity Markets," Energies, MDPI, vol. 14(13), pages 1-20, July.
    11. Prakash, Abhijith & Ashby, Rohan & Bruce, Anna & MacGill, Iain, 2023. "Quantifying reserve capabilities for designing flexible electricity markets: An Australian case study with increasing penetrations of renewables," Energy Policy, Elsevier, vol. 177(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pollitt, M. & Dale, L., 2018. "Restructuring the Chinese Electricity Supply Sector - How industrial electricity prices are determined in a liberalized power market: lessons from Great Britain," Cambridge Working Papers in Economics 1871, Faculty of Economics, University of Cambridge.
    2. Anaya, Karim L. & Pollitt, Michael G., 2020. "Reactive power procurement: A review of current trends," Applied Energy, Elsevier, vol. 270(C).
    3. Fianu, Emmanuel Senyo & Ahelegbey, Daniel Felix & Grossi, Luigi, 2022. "Modeling risk contagion in the Italian zonal electricity market," European Journal of Operational Research, Elsevier, vol. 298(2), pages 656-679.
    4. Daraeepour, Ali & Patino-Echeverri, Dalia & Conejo, Antonio J., 2019. "Economic and environmental implications of different approaches to hedge against wind production uncertainty in two-settlement electricity markets: A PJM case study," Energy Economics, Elsevier, vol. 80(C), pages 336-354.
    5. Keppler, Jan Horst & Quemin, Simon & Saguan, Marcelo, 2022. "Why the sustainable provision of low-carbon electricity needs hybrid markets," Energy Policy, Elsevier, vol. 171(C).
    6. David P. Brown & Andrew Eckert & Douglas Silveira, 2023. "Strategic interaction between wholesale and ancillary service markets," Competition and Regulation in Network Industries, , vol. 24(4), pages 174-198, December.
    7. Alexis Tantet & Philippe Drobinski, 2021. "A Minimal System Cost Minimization Model for Variable Renewable Energy Integration: Application to France and Comparison to Mean-Variance Analysis," Energies, MDPI, vol. 14(16), pages 1-38, August.
    8. Paul L. Joskow, 2001. "California's Electricity Crisis," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 17(3), pages 365-388.
    9. Abdullah Al-Shereiqi & Amer Al-Hinai & Mohammed Albadi & Rashid Al-Abri, 2021. "Optimal Sizing of Hybrid Wind-Solar Power Systems to Suppress Output Fluctuation," Energies, MDPI, vol. 14(17), pages 1-16, August.
    10. Karsten Neuhoff & Jörn C. Richstein & Mats Kröger, 2023. "Reacting to Changing Paradigms: How and Why to Reform Electricity Markets," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 127, number pbk189.
    11. Filippo Beltrami & Fulvio Fontini & Monica Giulietti & Luigi Grossi, 2022. "The Zonal and Seasonal CO2 Marginal Emissions Factors for the Italian Power Market," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 83(2), pages 381-411, October.
    12. Casimir Lorenz & Clemens Gerbaulet, 2017. "Wind Providing Balancing Reserves: An Application to the German Electricity System of 2025," Discussion Papers of DIW Berlin 1655, DIW Berlin, German Institute for Economic Research.
    13. Kunz, Friedrich & Neuhoff, Karsten & Rosellón, Juan, 2016. "FTR allocations to ease transition to nodal pricing: An application to the German power system," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 60, pages 176-185.
    14. Le Cadre, Hélène & Mezghani, Ilyès & Papavasiliou, Anthony, 2019. "A game-theoretic analysis of transmission-distribution system operator coordination," European Journal of Operational Research, Elsevier, vol. 274(1), pages 317-339.
    15. Bert Willems & Juulia Zhou, 2020. "The Clean Energy Package and Demand Response: Setting Correct Incentives," Energies, MDPI, vol. 13(21), pages 1-19, October.
    16. Petropoulos, Georgios & Willems, Bert, 2020. "Long-term transmission rights and dynamic efficiency," Energy Economics, Elsevier, vol. 88(C).
    17. Muyi Yang & Yuanying Chi & Kristy Mamaril & Adam Berry & Xunpeng Shi & Liming Zhu, 2020. "Communication-Based Approach for Promoting Energy Consumer Switching: Some Evidence from Ofgem’s Database Trials in the United Kingdom," Energies, MDPI, vol. 13(19), pages 1-16, October.
    18. Russo, Marianna & Kraft, Emil & Bertsch, Valentin & Keles, Dogan, 2022. "Short-term risk management of electricity retailers under rising shares of decentralized solar generation," Energy Economics, Elsevier, vol. 109(C).
    19. Pradhan, Ashis Kumar & Rout, Sandhyarani & Khan, Imran Ahmed, 2021. "Does market concentration affect wholesale electricity prices? An analysis of the Indian electricity sector in the COVID-19 pandemic context," Utilities Policy, Elsevier, vol. 73(C).
    20. Do, Hung Xuan & Nepal, Rabindra & Jamasb, Tooraj, 2020. "Electricity market integration, decarbonisation and security of supply: Dynamic volatility connectedness in the Irish and Great Britain markets," Energy Economics, Elsevier, vol. 92(C).

    More about this item

    Keywords

    Ancillary services; Balancing energy; Frequency regulation; Reactive power; Constraint management; Reserves;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:enejou:v:41:y:2020:i:1_suppl:p:5-32. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.