PHD Thesis - Finalversion - Juliana Zapata - May 2015

Facilitating the integration of renewable energy
through combined-heat-and-power flexibility
Juliana Victoria ZAPATA RIVEROS
Examination committee: Dissertation presented in partial

Prof. dr. ir. Hugo Hens, chair fulfilment of the requirements for the
Prof. dr. ir. William D’haeseleer, supervisor degree of PhD in Engineering
Prof. dr. ir. Ronnie Belmans Science
Prof. dr. ir. Lieve Helsen
Prof. dr. ir Geert Deconinck
dr. ir. Erik Delarue
Prof. Maurizio Sasso, PhD
(University of Sannio, Italy)
May 2015
© 2015 KU Leuven – Faculty of Engineering Science
Uitgegeven in eigen beheer, Juliana Victoria Zapata Riveros, Celestijnenlaan 300A box 2421, B-3001 Heverlee (Belgium)
Alle rechten voorbehouden. Niets uit deze uitgave mag worden verveelvoudigd en/of openbaar gemaakt worden door middel
van druk, fotokopie, microfilm, elektronische of op welke andere wijze ook zonder voorafgaande schriftelijke toestemming van
de uitgever.
All rights reserved. No part of this publication may be reproduced in any form by print, photo-print, microfilm, or any other
means without written permission from the publisher.
No te rindas que la vida es eso,
Continuar el viaje,
Perseguir tus sueños,
Destrabar el tiempo,
Correr los escombros,
Y destapar el cielo
-Mario Benedetti
To my parents
Acknowledgements
¿Cuatro años, chiquita? Four years, my little one? A bit more than four years have
already passed since the moment when my father asked me if I was seriously thinking
about spending four years more of my life studying at the university… four years.
Now four years later, I would like to thank my promoter professor D’haeseleer for
giving me the opportunity to start and successfully finish an important step of my
career, and for all the patience and time he invested in this work. I also appreciate the
constructive comments of my jury members. Thanks to their feedback, my work has
been largely improved.
I do not know who invented the motto of “TME colors your life”, but it truly reflects
my experience in this division: during my time here not every day had a blue sky
(figuratively speaking), but my colleagues were there to make me smile and I am
sincerely thankful for that. After all, who can resist the contagious laughter of Dieter,
or the funny anecdotes of Ruben’s time in Colombia. I will not forget his “flattering”
comments that Dries tried hard to continue (with no real success). Among all the hard
work, lunch was always a moment to look forward to: Joris and his strange
conversations, Geert describing my food as baby vomit and Kris’ appropriate comments
at the appropriate moment.
I would also like to thank all the colleagues who in one way or another helped me
through these four years: Jeroen and Kenneth for the interesting discussions;
Kenneth VdB who was always ready to help with a big smile and a funny comment;
Nico for being our first reference of rectitude; Tijs for fighting for our “rights”; Cornelia
for our short conversations in the hall; Sepideh for carrying always a big smile; Annouk
for reminding the TME group that “girls have the power”; Emre for explaining me that
I should not drink 8 liters of water a day; Marteen for reminding me that we are in
Belgium and I should have learnt more Dutch than “Dank u well en graag gedaan”;
and Damian for being kind and patient explaining me the principles of heat pumps.
I owe special thanks to my office colleagues for all the jokes and conversations: Daniel
for being like the older brother in the office helping me to find my way in Belgium;
Stefan for his infinite kindness and for cheering me up these last months; Wouter for
keeping the seriousness at work and for finishing the chocolates I could not finish
myself; Mats for his funny and cheeky comments; Roel for his ecological principles;
I
II Acknowledgments
Andreas for bringing some fresh air to the office (not only literally by opening the
windows).
Next to our office there were always Valerie and Kathleen ready to help with visas,
tickets, hotel bookings, and asking about my health. I really appreciate all your
patience and your work.
For all those colleagues that I forgot to mention: enjoy your time in TME. One day you
will be writing this and thinking “Oh my god! How much I am going to miss this group!”.
I would like to specially thank my group of friends. Natalia’s way to see the life
challenged my white and black version of life and I am grateful for that. For most of
my PhD, I counted on Elena’s practical advice which helped me see that life situations
were not as complicated as I had thought. Laura, my favorite “costeña”, thanks for all
the enthusiasm and party spirit that you and Oonagh have brought to my life. Thanks
for being a fantastic football fan – without you and Andrea the World Cup would not
have been as fun as it was and thanks for being always ready to celebrate my small
victories. And my dear Heidi, who has become like a sister, thank you for letting me
get involved in your wedding arrangements, for cheering me up with your logical (and
not so logical) explanations, for forcing me to go to the gym and entertaining me in
those hours of pain.
My sincere thanks go to my Colombian supporting group without whom my European

adventure would not have worked so well: Carito, Willie y Hector gracias por estar
siempre ahí, reírse conmigo, reírse de mí y enseñarme a no tomar la vida tan en serio.
Gracias por probar que la amistad no tiene fronteras ni visas que la detengan.
I would like to express my gratitude to my family. Cómo no darle las gracias a mi tío
Jhon por esperarnos cada año con la comida más deliciosa del mundo; a mi tío Jorge
por tenernos siempre en sus oraciones y ser el vivo recuerdo de mi padre; a mi
hermana por poner sus metas muy altas y mostrarme que es posible alcanzarlas, por
ayudarme y preocuparse por mí; y a mi mamá a ella se lo debo todo. Su fortaleza, su
ternura y su lucha cada día por salir adelante han sido la más grande motivación para
cumplir mis sueños.
Außerdem möchte ich mich bei meinem Freund Micha dafür bedanken, dass er immer
an mich geglaubt und mir Mut gemacht hat meine Ziele zu erreichen. Er hat mich zum
Lachen gebracht und mein Leben mit Freude erfüllt. Darum freue ich mich auf
zukünftige Abenteuer.
Four years later, I do not regret this fantastic experience and I am sure my father
agrees with me. Now he would be proudly saying “esa es mi chiquita”.
Abstract
The liberalization of the electricity markets as well as the growing environmental
concerns have triggered the widespread use of distributed generation technologies,
especially renewable energy resources and combined heat and power generation
(CHP). Nevertheless, the intermittency of some of these technologies such as
photovoltaic installations and wind turbines, yields an important challenge to the
electric grid operator.
In this context it is proposed to group controllable and intermittent generation devices

in what is known as a virtual power plant (VPP). This kind of aggregation will facilitate
not only the participation of distributed generators in the electricity market but it also
might help to compensate the forecast errors of renewables by using the flexibility of
controllable devices.
The aim of this work is to develop several control strategies for the economic optimal
operation of distributed generation devices that are aggregated into a virtual power
plant incorporating thermal-demand aspects. The main focus is on the role that
cogeneration can play in increasing the flexibility of the system and the profits of the
virtual power plant operator. In this respect, three main research questions are
assessed: the ability to reduce the imbalance volume and the associated costs using
residential micro-CHPs, the opportunity to provide passive balancing with an
aggregation of micro-CHPs and the ability of cogeneration district heating to
compensate for the uncertainty in the system.
It is shown that micro-CHPs are able to partially compensate for the deviations
between local electric power demand and local power generation. Nevertheless, this
imbalance volume reduction does not always lead to a reduction of the imbalance cost.
It is demonstrated that a control strategy aiming to minimize imbalance volumes
disregarding the imbalance tariffs can lead to an increase in operational costs,
especially during spring and summer. Furthermore, the results indicate that even in
the best case scenario, the level of savings are not to be sufficiently high to motivate
CHP owners to join a VPP.
The possibility to provide real-time balancing services or passive balancing is assessed

for an aggregation of micro-CHP devices installed in different households and service
buildings. The results give a clear indication that providing passive balancing leads to
III
IV Abstract
a total cost decrease in all the seasons compared to a case in which the electricity is
traded only in the day-ahead market.
Finally, the added value of using CHP linked to a district heating network (CHP-DH) to
compensate for the uncertainties regarding electricity generation and market prices
development is investigated. Stochastic programming is used to explicitly model the
uncertainties in the system. It is shown that using the flexibility of the CHP-DH together
with a thermal-storage unit results in an increase in profits during spring and summer.
However, due to the high demand for heat during the winter, the CHP-DH can offer
less flexibility during these months resulting in a lower added value. In addition, if the
VPP is allowed to react in real time to the current imbalance prices the profit increase
is even larger.
To a large extent, the research work presented in the thesis was supported by the
LINEAR project1.
1
http://www.linear-smartgrid.be/en/research-smart-grids
Beknopte samenvatting
Zowel de liberalisering van de elektriciteitsmarkten als de toenemende aandacht voor
de klimaatsverandering zorgden voor een toename in het gebruik van decentrale
energieopwekking, voornamelijk in hernieuwbare energie en warmte-krachtkoppeling
(WKK). De variabiliteit en moeilijke voorspelbaarheid van sommige van deze
technologieën, zoals zonnepanelen en windturbines, zorgen voor grote uitdagingen
voor de operatoren van het elektrisch net.
In deze context wordt er voorgesteld om de controleerbare en oncontroleerbare

elektriciteitsproductie te groeperen in een zogenaamde virtuele elektriciteitcentrale.
Deze aggregatie laat de participanten van decentrale energieopwekking niet alleen toe
om deel te nemen aan de elektriciteitsmarkt, deze kan ook helpen om de
voorspellingsfouten van hernieuwbare energie te compenseren.
De bedoeling van dit werk is om verschillende regelestrategieën te ontwikkelen voor

optimale techno-economische regeling van virtuele elektriciteitscentrales van
decentrale energieopwekking. De klemtoon ligt op de rol die cogeneratie kan spelen
in een verhoging van de flexibiliteit in het systeem en de opbrengsten voor de operator
van de virtuele elektriciteitscentrale. Hierin worden voornamelijk drie mogelijkheden
geëvalueerd: de mogelijkheid om de hoeveelheid onbalans en de geassocieerde kost
te verminderen door slimme aansturing van micro-WKK’s, de mogelijkheid tot het
leveren van passieve balancering met een aggregatie van micro-WKK’s en de
mogelijkheid om onzekerheid in het systeem te compenseren door gebruik te maken
van een warmtenet met warmte-krachtkoppeling.
Er werd aangetoond dat micro-WKK’s de afwijkingen tussen lokale elektrische vraag

en productie gedeeltelijk kunnen compenseren. Desondanks is de vermindering in de
hoeveelheid onbalans niet altijd in overeenstemming met de reductie in onbalanskost.
Verder werd ook aangetoond dat een regelestrategie, gericht op het minimaliseren van
de onbalans, kan leiden tot een stijging in de operationele kost, voornamelijk tijdens
de lente en de zomer. Verder tonen de resultaten aan dat zelfs in het beste scenario,
de kostvermindering niet genoeg lijkt om eigenaars van een WKK aan te moedigen om
in een virtuele energiecentrale te stappen.
De resultaten voor passieve balancering van de aggregatie van micro-WKK’s in zowel

residentiële als commerciële gebouwen zijn beter. Deze resultaten geven aan dat
V
VI Beknopte samenvatting
passieve balancering in staat is om de totale kost te reduceren gedurende alle

seizoenen, in vergelijking met het geval waarin de elektriciteit op de day-ahead markt
wordt verhandeld.
Ten slotte werd de toegevoegde waarde onderzocht van het gebruik van warmte-
krachtkoppeling met een warmtenet om de onzekerheden inzake elektriciteitsproductie
en marktprijzen te compenseren. Het gebruik van stochastisch programmeren liet toe
om de onzekerheden in het systeem expliciet te modelleren. De flexibiliteit in de
combinatie van warmte-krachtkoppeling met warmteopslag en warmtenet, liet toe om
de winst te verhogen in het tussenseizoen en de zomer. In de winter is dit systeem
minder flexibel en zijn de resultaten conservatiever. Ten slotte, wanneer de virtuele
energiecentrale toegelaten wordt om op elk ogenblik op de actuele onbalansprijzen te
reageren, kan deze zijn winsten verder verhogen.
Een groot deel van het onderzoek dat in deze thesis wordt gerapporteerd werd
gefinancierd door het LINEAR-project2.
2 http://www.linear-smartgrid.be/en/research-smart-grids
Abbreviations
ACF Auto Correlation Function

ADR Active Demand Response
ARIMA Autoregressive Integrative Moving Average
BRP Balance Responsible Party
CCGT Combined Cycle Gas Turbine
CDF Cumulative Distribution Function
CHP Combined Heat and Power
CPP Conventional Power Plant
DA Day-ahead
DG Distributed Generation
DH District Heating
DSO Distribution System Operator
ECDF Empirical cumulative distribution function
EU European union
EV Electric Vehicle
FCR Frequency Containment Reserves
FUR Fuel Utilization Ratio
FRR Frequency Replacement Reserves
GA Genetic Algorithms
HHV Higher Heating Value
HP Heat Pumps
ICE Internal Combustion Engine
ICT Information and Communication Technology
IEA International Energy Agency
LHV Lower Heating Value
VII
VIII Abbreviations
LP Linear Programming
LT Life time of a project
MAS Multi-agent system
MDP Marginal Decremental Price
MILP Mixed Integer Linear Programming
MINLP Mixed Integer non-Linear Programming
MIP Marginal Incremental Price
MPC Model Predictive Control
NLP Nonlinear Programming
NPV Net Present Value
NRV Net Regulation Volume
OTC Over the counter
PACF Partial Auto Correlation Function
PHS Pumped-hydro Storage
PV Photovoltaic
RES Renewable Energy Sources
RES-E Renewable Energy Sources of Electricity
RR Replacement Reserves
RSC Relative Storage Capacity
RT Real Time
SARIMA Seasonal ARIMA
SDP Stochastic Dynamic Programming
SI System Imbalance
SOC State of Charge of the Storage Tank
TSO Transmission System Operator
VPP Virtual Power Plant
WPP Wind Power Plant
List of Symbols
Additional incentive applied on top of the regulation costs in cases

of major positive system imbalances [€/MWh]
Electrical efficiency of the CHP [%]
Thermal efficiency of the CHP [%]
Additional incentive applied on top of the regulation costs in cases

of major negative system imbalances [€/MWh]
On/off status of the CHP device [-]
∆
Difference between the actual and planned operational cost
[€/MWh]
∆ Difference between the electric power generated by the CHP and

planned electric power [MW]
∆ Difference between the actual and forecasted electric power

demand [MW]
∆ Total imbalance error of the VPP [MW]
∆ Negative imbalance volume [MW]
∆ Positive imbalance volume [MW]
∆ Imbalance caused by the photovoltaic installation [MW]
∆ Difference between RES electric power dispatched and scheduled

[MW]
∆
Difference between the actual and scheduled fuel consumption of
the boiler [MW]
IX
X List of Symbols
∆ Difference between the actual and scheduled fuel consumption of

the CHP [MW]
∆!
Difference between the delivered and planned thermal power of
the boiler [MW]
∆! Difference between the delivered and planned thermal power of

the CHP [MW]
∆" Revenues obtained from selling the flexibility in the balancing
market [€]
∆" # Extra gain or loss of green certificates [€]
∆$ Simulation time step [h]
∆% Temperature difference of the storage tank [K]
&' ()*+ Thermal efficiency of the boiler [%]
& Electrical efficiency of the reference system [%]
& Thermal efficiency of the reference system [%]
&,- Storage tank loss factor [%]
. Probability of occurrence of a scenario [%]
/ 0 Day-ahead market prices [€/MWh]
/ 12 Gas prices [€/MWh]
/ # Price to buy electricity from the grid [€/MWh]
/ Imbalance market prices [€/MWh]
/ Negative imbalance prices [€/MWh]
/ Positive imbalance prices [€/MWh]
/ 0
Local price of the electricity [€/MWh]
34 Slope of the electric power to prime energy curve of the CHP [-]
3-5 Slope of the electric power to thermal power of the CHP [-]
List of Symbols XI
67 Banding factor [-]
64 Intercept of the electric power to prime energy curve of the CHP

[MW]
6-5 Intercept of the electric power to thermal power output curve of

the CHP [MW]
8 Initial investment cost [€]
94 Specific heat [J/kg∙K]

Operational cost of the boiler [€]
Operational cost of the CHP [€]
Cost of producing electricity with the CHP [€]
; Deviation penalty [€]
# Cost of the electricity bought from the grid [€]
Imbalance cost [€/MWh]
Operational cost of the CHP system (boiler and prime mover) [€]
,-<+-_>4 Start-up cost [€]
?1 First component of the piecewise penalty function [MW]
?2 Second component of the piecewise penalty function [MW]
?3 Third component of the piecewise penalty function [MW]
?CD Limits of the piecewise deviation function
E%F Minimum down time of each CHP unit [h]
Electric power generated by the CHP [MW]
GHIJK Scheduled electric power output of the CHP [MW]
HLM Electric power generated by the CHP exported to the grid [MW]
NIJN Electric power generated by the CHP used locally [MW]

XII List of Symbols
O<P
Maximum electric power output of the CHP [MW]
O(F

Minimum electric power output of the CHP [MW]
JIKQJN Electric power output delivered by the CHP [MW]
0 Electric power traded in the day-ahead market [MW]
0 Day-ahead market bid [MWh]
Electric power demand [MW]
1 0R Forecasted electric power output of the VPP [MW]
; Electric power generated by the PV installation [MW]
;GHIJK Forecasted electric power output of the PV installation [MW]
;JIKQJN Actual electric power output of the PV installation [MW]
0 R20 Actual electric power output of the VPP [MW]
Expected electric power generated by the RES [MW]
R Electric power generated on real time [MW]
R Real time energy generation [MWh]
O<P
;
Total installed capacity of the VPP [MW]
ST Energy generated by the wind power plant [MWh]
Primary fuel consumption of the CHP [MW]

Primary fuel consumption of the boiler [MW]
U Mass of water in the storage tank [Kg]
V Net cash flow [€]
!
Thermal power generated by the auxiliary boiler [MW]
!O(F

Minimum thermal power output of the auxiliary boiler [MW]
!O<P

Maximum thermal power output of the auxiliary boiler [MW]
! Thermal (dis)charging power from/to the storage tank [MW]

List of Symbols XIII
! Thermal power generated by the CHP [MW]
!O<P
Maximum thermal power output of the CHP [MW]
!O(F

Minimum thermal power output of the CHP [MW]
! Thermal power demand [MW]
! State of charge of the thermal-storage tank [MWh]
!O<P

Maximum capacity of the thermal-storage tank [MWh]
W3$C Discount rate [%]
" 0 Day-ahead market profits [€]
" # Profits obtained from selling the electricity to the grid [€]
" Imbalance market profits [€]
" 0 Savings due to the self-consumption of the electricity [€]
X%F Minimum up time of each CHP unit [h]
Subscripts
Y Scenarios
Z Imbalance prices scenario
[ Number of CHP units
W Renewable energy scenarios
\ Day-ahead prices scenarios
$ Time
Contents
Abstract ............................................................................... III

Beknopte samenvatting ........................................................ V
Contents .............................................................................. XV
1. Introduction ...................................................................1
1.1 General Context.....................................................................................1
1.2 Research Questions ...............................................................................3
1.3 Assumptions and Delimitation of this Work...............................................4
1.4 Overview of this Work ............................................................................4
2. Background on VPPs, the Belgian Electricity Market, DG

and CHPs ........................................................................7
2.1 Definition ..............................................................................................7
2.2 The Belgian Electricity Market .................................................................9
2.2.1 Trading ....................................................................................................... 10
2.2.2 Balancing .................................................................................................... 12
2.2.3 Reserve Power............................................................................................. 14
2.3 Virtual Power Plants in the Electricity Market .......................................... 15
2.3.1 Active Participation in the Balancing Market ................................................... 16
2.3.2 Self-Balancing .............................................................................................. 20
2.3.3 Passive Balancing ......................................................................................... 22
2.4 Cogeneration Concept .......................................................................... 23
2.4.1 Micro-CHPs .................................................................................................. 24
2.4.2 District Heating Cogeneration ....................................................................... 26
2.5 Summary and Conclusions .................................................................... 27
3. Preliminary Concepts ...................................................29

3.1 Heat-Driven Operation ......................................................................... 29
3.2 Electricity-Driven Operation .................................................................. 30
3.3 Economic-Optimization Model ............................................................... 32
3.4 Application to a Case Study .................................................................. 35
3.4.1 CHP Sizing ................................................................................................... 36
3.4.2 Gas and Electricity Prices .............................................................................. 38
3.4.3 Sizing of the Thermal-Storage Tank .............................................................. 39
3.4.4 Reference Case ............................................................................................ 40
3.5 Results and Discussion ......................................................................... 40
3.5.1 Electricity and Heat Generation ..................................................................... 40
3.5.2 Cost Savings ................................................................................................ 45
3.5.3 Influence of the Storage Capacity ................................................................. 46
XV
XVI Contents
3.5.4 Net Present Value ........................................................................................ 47

3.6 Conclusions ......................................................................................... 52
4. Self-Balancing Using Virtual Power Plants ...................53

4.1 Introduction ........................................................................................ 53
4.2 Problem Description ............................................................................. 54
4.3 Optimization Algorithm ......................................................................... 56
4.3.1 Day-Ahead Optimization Algorithm ................................................................ 58
4.3.2 Actual Day Optimization - ‘Forced Self-Balancing’ ........................................... 59
4.3.3 Actual Day Optimization - ‘Economic Self-Balancing’ ....................................... 59
4.4 Assumptions........................................................................................ 60
4.4.1 Cogeneration System ................................................................................... 60
4.4.2 Electricity and Gas Prices .............................................................................. 61
4.5 Forecasting ......................................................................................... 61
4.5.1 Forecasted and Measured Photovoltaic Data .................................................. 61
4.5.2 Imbalance Price Forecast.............................................................................. 62
4.6 Results and Discussion ......................................................................... 63
4.6.1 Day-Ahead Schedule Compliance .................................................................. 64
4.6.2 Total Operational Cost .................................................................................. 66
5. Passive Balancing Using Micro-CHPs............................75

5.1 Introduction ........................................................................................ 75
5.2 Methodology ....................................................................................... 76
5.3 Optimization Algorithm ......................................................................... 78
5.3.1 Day-Ahead Optimal Nomination .................................................................... 78
5.3.2 Near Real Time Balancing Optimization ......................................................... 79
5.4 Application to a Belgian case study ........................................................ 81
5.4.1 Description of the Case Study ....................................................................... 81
5.4.2 Auxiliary Boiler and Thermal-Storage Tank .................................................... 82
5.4.3 Gas and Electricity Prices .............................................................................. 83
5.5 Results from the Case Study ................................................................. 83
5.5.1 Results from the Day-Ahead Optimization ...................................................... 84
5.5.2 Results from the Near Real Time Balancing Optimization ................................ 86
5.6 Sensitivity Assessment ......................................................................... 91
5.6.1 Boiler Efficiency ........................................................................................... 91
5.6.2 Sensitivity on the Gas Price........................................................................... 91
5.6.3 CHP Certificates ........................................................................................... 93
6. Bidding of a VPP in the Day-Ahead Market under

Uncertainty...................................................................97
6.1 Introduction ........................................................................................ 97
6.2 Introduction to Stochastic Optimization.................................................. 98
6.3 Methodology ..................................................................................... 103
6.3.1 Stochastic Optimization Model .................................................................... 107
6.3.2 Application to a Case Study ........................................................................ 112
6.3.3 Scenario Generation and Reduction ............................................................. 113
Contents XVII
6.3.4 Limiting the Imbalance Volume ................................................................... 113

6.4 Results and Discussion ....................................................................... 117
6.5 Conclusions and Further Work ............................................................ 122
7. Summary and Conclusions .........................................125

7.1 Self-Balancing Using Residential micro-CHPs ........................................ 125
7.2 Passive Balancing with an Aggregation of micro-CHPs ........................... 127
7.3 Bidding of a VPP under Uncertainty ..................................................... 128
7.4 General conclusions ........................................................................... 130
7.5 Recommendation for Further Work...................................................... 130
References..........................................................................151
List of Publications .............................................................163
Short Curriculum ................................................................165
1. Introduction
1.1 General Context

The traditional electric power system is evolving from a centralized system largely
based on fossil-fuels and nuclear energy, towards a more decentralized electric power
system with high penetration of combined heat and power (CHP) generation and
electricity from renewable energy sources (RES-E).
According to [1], decentralized or distributed generation (DG) can be defined as an

electric power generation source connected directly to the distribution network grid or
on the customer side of the meter, independent of the size, fuel or technology used.
Decentralized generation is not a new concept. The first power plants generated
electricity locally to meet the demand of the neighboring customers. The economies
of scale and technological advances paved the way for a centralized generation system
[2]. However, during the last decades, the interest for distributed generators has been
rising in Europe.
One of the most important aspects that triggered the renewed interest in DG is the
increase of environmental awareness. In line with the environmental concerns, several
governments have launched incentives to promote the use of RES-E and
energy-efficient technologies. In this context, cogeneration3 can play an important role
due to its ability to efficiently use the waste heat and thus reduce primary energy
consumption [2].
As a consequence of these support mechanisms, in the coming years, distributed and

RES generation will play an important role for the electricity generation. This fact is
already visible in the European electric system. According to the statistics given by
ENTSO-E, between 2012 and 2013, the increase of the share of RES-E (excluding
hydro) was 12%. This then results in a total share of renewables (excluding hydro) of
13% of the electric energy generated by ENTSO-E members [3].
Aside from all expected benefits resulting from the connection of decentralized
resources, several concerns arise due to the variable and unpredictable nature of some
3
The terms ‘cogeneration’ and combined heat and power (CHP) are used as synonyms.
1
2 Introduction
RES-E such as wind and solar generation. The intermittency of RES-E has to be
compensated in order to keep the optimal operation of the electricity system.
Traditionally, conventional power plants have been used as operational reserves to

satisfy the electric power balance on the short time scale. In general terms, the task
of the reserve power is to deal with unforeseen occurrences on the supply side and
deviations from the expected demand.
However, the large penetration of intermittent (i.e., largely variable and to some extent
uncertain) RES-E, requires an adaptation of the electric power system. The impact of
large amounts of intermittent RES-E, especially wind power, in the electric power
system has been extensively studied ([4], [5], [6], [7], [8], [9], [10]). In the PhD
dissertation of De Vos [9] it is stated that increasing operation reserves in order to
accommodate the intermittency of RES-E, can impact the electricity generation cost.
Holttinen, et al., [5] conclude that with a penetration of 10% (of gross electric energy
demand) of wind energy the reserve cost could increase between 1 and 15%. Milligan,
et al., [10] highlight that: “flexibility is the key to successfully and efficiently integrating
wind energy”‘.
In this PhD thesis flexibility is understood as “the ability to quickly and inexpensively
adapt […] own power generation and demand in response to varying electricity prices,
electricity market conditions, transmission and distribution system conditions, and of
regulation [11]”.
According to EURELECTRIC several measures can be taken to backup renewables and

increase the system flexibility [12]. In addition to the already mentioned dispatch of
flexible and back-up generation such as combined cycle gas turbines and hydro power
plants, other measures are: interconnection with neighboring zones, applying
curtailment and increasing the energy storage capacity. Concerning the last one, this
is not limited to large electricity storages such as pumping hydro plants but also to
domestic/distributed electric and thermal-storage devices.
Furthermore, flexibility can also be achieved by incentivizing the end users to play an
active role in the energy market. This can be done by stimulating active demand
response (ADR). This mechanism has been extensively studied in the LINEAR project
[13]. The results of this project demonstrate not only the technical feasibility of ADR
but also the large potential of using ADR to mitigate the difficulties faced in a
deregulated electricity market.
In the same spirit as the LINEAR project, this thesis focuses on consumers who act as
small electricity generators, also called prosumers, and provide flexibility by means of
Research Questions 3
energy storage. The aim is to study several measures that can be implemented by
these small market players to increase their flexibility. Additionally, the economic
benefits obtained by exploiting this flexibility are evaluated.
1.2 Research Questions

The objective of this thesis is to design and develop different control strategies for the
optimal techno-economic operation of a group of DG devices incorporating
thermal-demand aspects. The main focus is on the role that cogeneration can play to
increase the flexibility of the system. In addition, the economic benefits associated
with using this flexibility are estimated. The studied cogeneration system includes not
only the prime mover but also a backup boiler and a thermal-storage tank that help to
decouple the heat demand from electricity generation. This analysis concerns not only
small scale micro-cogeneration but also larger units used for district-heating (CHP-DH)
applications.
In this context, three different strategies have been identified. They assess the new
opportunities that cogeneration units have to exploit their flexibility in the framework
of the actual energy market. The three studied strategies build on each other in a
complementary manner.
The first, or ‘self-balancing’ strategy, starts from the assumption that the market
players have enough motivation to keep their portfolio balanced in real time. Thus, the
ability of residential micro-CHPs to reduce imbalance volumes due to forecast errors
of RES-E is assessed.
Nevertheless, keeping the own balance is not always convenient for the system
operator. In fact, the actual design of the Belgian balancing market allows the
participants to react on imbalance tariffs modifying their physical position in real-time,
thereby helping to reduce the residual system imbalance. The second strategy, or
‘passive balancing’, investigates the possibility to provide near-real-time electrical
balancing services, making use of an aggregation of micro-CHPs.
Finally, the last strategy tackles the problem of ‘bidding under uncertainty’. In the
previous strategies, the decisions where taken under a particular level of uncertainty.
In this last strategy, the uncertainty is explicitly modeled using stochastic programming
and the ability of cogeneration to cope with this uncertainty is evaluated.
In summary, this research seeks to address the following questions:

4 Introduction
What is the potential of using micro-CHP to reduce the local imbalance volume between
local electric power demand and local power generation? Can this operation reduce
the imbalance cost and increase the total income of the micro-CHP operator?
Which control scheme can be used to provide near real time electrical balancing
services aggregating several micro-CHP devices? Which are the economic benefits for
the aggregator?
What is the added value of using CHP-DH to compensate for the uncertainties
regarding electric power generation and market prices development?
1.3 Assumptions and Delimitation of this Work

One of the most important assumptions in this work is that cogeneration devices are
able to participate in the electricity market for energy and reserve power. Currently,
this assumption is true for large cogeneration units. In this PhD thesis it is assumed
that micro-CHPs interact with the electricity market only via an aggregator.
This work does not aim to be a reference for deciding whether certain investments on
DG are profitable or not. For this reason, the capital cost is generally disregarded. Only
Chapter 3 considers the investment cost of micro-CHP. The other chapters aim at
analyzing the potential operational cost savings and revenues that can be obtained by
the optimal operation of CHP devices.
Additionally, the characteristics of the building where the CHPs are installed are a
boundary condition. They are represented by given heat demands. These heat
demands are obtained from measurements performed on real buildings located in
central-western-Europe.
Finally it is important to remark that this thesis is not intended to analyze the
integration of the DG technology into the electrical grid, their impact on the power
quality, cables and conductors, nor on any other criteria that utilities may require in
order to guarantee the operation of their grids.
1.4 Overview of this Work

Besides this introduction, this work is structured into six additional chapters.
Chapter 2 provides the necessary background for understanding this work. It gives a
definition of the virtual power plant concept and a description of the Belgian electricity
Overview of this Work 5
market. Additionally, it provides a detailed literature review concerning the use of DG

flexibility. Afterwards it gives a description of the principles of cogeneration and the
characteristics of the most important prime movers.
Chapter 3 serves as a reference for the development of the following chapters. It

compares the traditional operation strategies employed for micro-CHP units, namely:
‘heat-driven’, ‘electrically-driven’ and ‘economic optimization’. Within this framework it
explains several concepts that are repeatedly applied in the following chapters, such
as: the methodology employed to size (or dimension) the cogeneration device and the
thermal-storage tank. In addition, it states the principles behind the linear
programming developed in this dissertation and the advantages of using this
technique.
In chapter 4, the first research question is addressed. This chapter investigates the
possibilities to reduce imbalance errors making use of micro-CHPs. The imbalance
stems from the forecast deviation of a photovoltaic facility. The conclusion shows that
it is technically possible to reduce large amounts of imbalance volume by using a
micro-CHP. Nevertheless, it is important to weight the imbalance reduction cost against
the avoided imbalance penalties, in order to evaluate the profitability and avoided
economic losses.
Chapter 5 presents a methodology to provide near real time balancing of the electrical
power grid using an aggregation of micro-CHP units. The methodology is based on two
mixed integer linear optimizations. The first optimization aims to find the optimal
electrical-generation day-ahead schedule of the micro-CHP aggregation. The objective
of the second optimization is to provide real-time balancing services. The latter is
performed each time step in a rolling-horizon approach. The results show that the
developed methodology leads to a positive economic impact for the aggregator.
Chapter 6 assesses the third research question. The study aggregates a CHP connected
to a district heating system (CHP-DH) together with intermittent renewables. The aim
is to estimate the added value of using CHP-DH to compensate the uncertainties of
the electric power system. In order to explicitly account for the uncertainties stochastic
programming is used. The results indicate that the aggregation of RES and CHP-DH
can result in a decrease of the total operational cost. Additional larger advantages can
be obtained when using the flexibility of CHP-DH in near real time.
Finally, Chapter 7 presents the summary and conclusions of this work and
recommendations for future research.
2. Background on VPPs, the Belgian
Electricity Market, DG and CHPs
This chapter outlines the fundamental concepts related to the operation of a virtual
power plant (VPP) in the electricity market. The chapter begins with a definition of the
term “virtual power plant” in Section 2.1. Next, a comprehensive description of the
operation of the Belgian electricity market is given in Section 2.2. Section 2.3 explains
three possible approaches to operate a VPP that participates in both the day-ahead
and imbalance market. An extensive literature review on this topic is given in Sections
2.3.1, 2.3.2 and 2.3.3. As the focus of this thesis is on cogeneration or combined heat
and power (CHP) devices, Section 2.4 elaborates on the cogeneration concept. This
chapter ends with a summary presented in Section 2.5.
2.1 Definition
The concept of a virtual electric power plant has been investigated extensively
([14]-[19]). According to these works, a virtual electric power plant is defined as an
aggregation of distributed electricity generators, controllable electrical loads and
electrical energy storage devices that emulates the operation of a single electric power
plant [15], [19]. This aggregation enables the participation of distributed devices in
the power exchange market ([16], [20]).
In other words, the function of a VPP operator is not limited to aggregate several
distributed electricity generation devices in terms of capacity,he also coordinates them
to obtain a single operating profile in order to resemble a conventional generation
power plant ([17], [18], [21]). As a result, a VPP operator is in charge of forecasting
the electric power generation and demand of his participants. Based on this
information, he nominates optimal bids in the electricity market. Afterwards, he
monitors the actual electric power generation and demand in order to calculate the
possible deviations from the day-ahead (DA) schedule. Finally, he takes optimal
decisions regarding the actual dispatch of electric power [22]. Figure 1 illustrates the
concept of a VPP.
7
8 Background on VPPs, the Belgian Electricity Market, DG and CHPs
Figure 1: Definition of a VPP. A VPP operator is in charge of forecasting, monitoring and optimizing
the operation of the aggregated devices that belong to his portfolio, to resemble a single electrical
power plant.
The benefits of using VPPs has been addressed in several studies ([14], [20], [23]).
According to Asmus [20], the use of a VPP could bring several benefits, such as
increasing the flexibility of the electric grid without a large investment in infrastructure.
Braun [23] states that the VPP concept brings along several benefits not only for the
DG owner but also for the system operators. Additionally, Dulau, et al., [14] claim that
VPPs can play an important role in facilitating the integration of small-scale RES-E in
the electricity system whilst reducing the CO2 emissions.
Whether the expected benefits of VPP can be substantiated depends on several

circumstantial factors. For instance the nature and geographical location of distributed
RES-E: e.g., in north-western Europe, there are several moments without direct solar
radiation and/or substantial wind speed. In those cases, limited local electricity storage
may be insufficient.
To better exploit the idea of a VPP, this PhD research has broaden the scope of a VPP
to incorporate and take advantage of the heat-demand side. Indeed through the use
of CHP devices, assisted by thermal-storage tanks and back-up boilers, the overall
energy system (electricity, heat and gas) can be better optimized4. The key point is
that CHPs run efficiently only if no heat is disposed; by using thermal-storage,
electricity generation and heat ‘delivery’ of a CHP system can be decoupled, as such
4
The effects of CHP with thermal-storage tank on the gas-distribution system have been
investigated by Vandewalle [124]. The current thesis concentrates on the integration of CHP and
thermal-storage in a VPP through electricity markets.
The Belgian Electricity Market 9
allowing the CHP to respond to electricity market signals and terms providing more
flexibility on the electric side.
The financial benefits expected from using VPPs depend largely on the interaction with
the exchange power market. The next Section 2.2 describes the functioning of the
Belgian electricity market.
2.2 The Belgian Electricity Market

The liberalization of the electricity market in Europe started in the early 1990s. The
objective was to increase the efficiency and competitiveness of the electricity market.
The most important actors of the liberalized market are shown in Figure 2.
The generators are in charge of converting primary energy into electricity. The
electricity in Belgium is generated using different kinds of power plants, with currently
effectively only nuclear power stations, combined cycle gas turbines5, cogeneration
units6, pumped hydro plants7 and electrical energy harvested from renewable
resources (e.g., solar and wind energy) [24]. The additional electric demand is covered
via imports8.
The generated electricity is transmitted to the consumers using extensive transmission

and distribution networks. The high and very high voltage networks are controlled by
the transmission system operator (TSO). The TSO guaranties the reliable operation of
the grid. Elia is the Belgian TSO. Similarly, medium and low voltage distribution
systems are operated by Distribution System Operators (DSO) [25].
The consumers are the end users; this group includes anyone who uses electricity,
ranging from large industrial players, usually connected to the high voltage grid, to
residential users that are connected to the distribution grid.
5
At the time of writing, there is still one coal-fired plant active and two smaller biomass plants.
The coal-fired plant will be shut down in the near future; the long term future of biomass plants
is uncertain.
6 During the year 2013, cogeneration accounted for almost 12 % of the total installed capacity
[125].
7
During the year 2013, pumped-hydro plants (in discharge mode) accounted for almost 8 %of
the total installed capacity [125].
8 During the year 2013, the net import balance was 9.64 TWh [125].
Figure 2: Main actors of the traditional electricity market. Traditionally, the electricity is generated
in central power plants and transmitted to the end user using the transmission and distribution
networks.
2.2.1 Trading
Electricity is typically traded either over the counter (OTC), establishing bilateral
agreements, or through the power exchange market, which is a standardized market
([26], [27]). Table 1 summarizes the most important characteristics of these markets,
the details are explained in the following sections.
Table 1: Main characteristics of the day-ahead and intraday electricity market in Belgium [28].
Bilateral Day-Ahead Continuous
Agreements Market Intraday

Market
FREE 0.01 0.10
Price tick value [€/MWh]
FREE 0.10 0.10
Minimum contract volume [MWh]
FREE -500.00 -99999.90
Minimum order price [€/MWh]
FREE 3000.00 99999.90
Maximum order price [€/MWh]
FREE 12:00 (D-1) 12:00 (D+1)
Closing gate [h]
2.2.1.1 Bilateral Agreements
OTC trading usually results in Agreements between two parties to exchange a certain
amount of electricity at a determined price during a specific period in time. These
agreements are usually non-regulated contracts and in most of the cases they are
made for the long term, e.g., one to several years in advance [29].
2.2.1.2 Day-Ahead Electricity Market
The day before delivery (D-1) market participants possess actualized information
regarding their generation and consumption portfolio. Day-ahead markets are
short-term markets that enable the participants to adjust their contracted positions on
an hour-by-hour basis [30].
In the day-ahead market, the participants can place bids for selling and buying
electricity the following day. In Belgium, the transactions are made via the organized
power market Belpex. The deadline for submitting the bids at the Belpex is 12:00 CET.
After the closure, the market price for each hour is cleared by matching the supply and
demand curve as illustrated in Figure 3.
Figure 3: Market clearing price. The market price is determined by matching supply and demand
curves.
Once the prices are calculated, trades are settled. The electricity is physically delivered
every hour of the next day following the agreed contracts.
Note that since February 2014 the day-ahead market of the North-Western European
region is coupled. This interconnection includes the following countries: Belgium,
Denmark, Estonia, Finland, France, Germany/Austria, Great Britain, Latvia, Lithuania,
Luxembourg, the Netherlands, Norway, Poland (via the SwePol Link) and Sweden [31].
2.2.1.3 Intraday Electricity Market
This market enables to trade electricity closer to real time to react to short-term
modifications of supply or demand. Since the majority of the electricity that is handled
on the power-exchange markets is traded in the day-ahead market, intraday markets
have lower liquidity. Nevertheless, this market is acquiring importance with the
increasing share of unpredictable generation such as solar and wind energy.
According to Vandezande [30], the importance of a well-functioning intraday market

is twofold: it can help to adjust possible infeasible schedules that result from the
day-ahead operation and it can accommodate forecast errors of RES-E generation [30].
2.2.2 Balancing
The fact that the electrical energy cannot be stored in large amounts in an economical
manner requires that the balance between power injected into the grid (generation
and imports) and power taken from it, should be kept at all time.
A deviation between electric power supply and demand is reflected in a deviation of

the grid frequency from the ideal value of 50 Hz (in Europe). As explained by
Vandezande [30], if generation exceeds demand, the frequency increases; if
generation is lower than demand, the frequency drops [30]. A stable frequency is
important for the optimal operation of several electrical appliances; large deviations
may result in the disconnection of generation units and load and eventually lead to a
system black-out [30].
The TSO is responsible for keeping the balance between generation and demand. This
responsibility is shared with Balance Responsible Parties (BRP). Each BRP is responsible
for ensuring the balance between the total amount of injection and offtake it
committed to at its access points on a quarter-hourly basis ([30], [32]).
The day before the actual delivery, the BRP must provide the TSO with a schedule of
its nominations. The TSO checks on the actual day whether the nominations are
consistent with the physical real time transmission. If this is not the case and an
imbalance is found, the TSO takes action to reduce the imbalance and the BRP is
charged an imbalance tariff.
These imbalance tariffs depend on the Marginal Incremental Price (MIP) and the
Marginal Decremental Price (MDP) corresponding to the largest and lowest prices the
TSO has paid to reduce the imbalance in the 15 minute frame, respectively. The Net
Regulation Volume (NRV) is the reserve power the TSO has to activate in the specified
15 minutes to preserve the balance in the system. If the grid has a surplus of power
and downward regulation is need, the NRV is negative. On the contrary, if the grid has
a deficit of power, upward regulation is necessary and the NRV is positive.
The imbalance tariffs are calculated taking into account several factors such as:
• The nature of the imbalance with regards to the BRP commitments (positive
or negative).
• The cost that the TSO has to pay to settle the total system imbalance (SI)9.
• The position of the TSO (surplus or deficit of energy).
The mechanisms for imbalance pricing are summarized in Table 2. As shown in the
table, four different cases can occur (called A, B, C and D).
Table 2: Belgian balancing pricing depending on the position of the TSO and the BRP [33].
Situation of the TSO

Surplus Deficit
Imbalance of the BRP Positive CASE A CASE B

POS TARIFF=MDP-α POS TARIFF =MIP-β
Negative CASE C CASE D
NEG TARIFF =MDP+β NEG TARIFF =MIP+α
NEG TARIFF = Negative Imbalance Tariff; POS TARIFF = Positive Imbalance Tariff; MIP =
Marginal Incremental Price; MDP = Marginal Decremental Price.
In the cases B and C of Table 2 the position of the BRP helps the TSO to reduce the
general imbalance. As a consequence, in case B, the TSO pays to the BRP the MIP and
in case C, the BRP pays for the lack of energy to the Belgian TSO at a price equal to
MDP (The MDP might become negative at some moments and the BRP gets paid for
not generating enough power). In the contrary cases (A and D) the BRP position
increases the total imbalance; thus it will receive the MDP or pay the MIP in case of
positive or negative imbalance, respectively.
If the total system imbalance is larger than 140 MW, the variables α and β shown in
Table 2 are activated. The activation of β is only “in principle” since, according to Elia,
β is usually set equal to zero. On the other hand, α is estimated based on the average
of the 8 previous values of the system imbalance as shown in Equation (2-1):
1 j i
∑(k8def^$ − Z_h
^$_ = a 8
(2-1)
1500
9
The system imbalance is the difference between the scheduled and measured values of the
Belgian control area considering the amount of reserve power activated. In other words, it is the
remaining imbalance after the Net Regulating Volume has been activated.
^$_ = 0 (2-2)
Finally, it is important to highlight that in the cases when α and β are not activated,
the positive and negative imbalance tariffs are the same [34].
2.2.3 Reserve Power

In order to correct the imbalance, the TSO can use either active or passive balancing.
The first one entails contracting of reserve capacity and energy that can be activated
in case of imbalance. The second one, on the other hand, allows the market
participants to contribute to maintain the system balance by changing their physical
position close to real time. The contracted products by the TSO are described in what
follows:
2.2.3.1 Frequency Containment Reserves
Frequency Containment Reserve (FCR; formerly called “primary reserves”) is activated

automatically by measuring the deviation of the grid frequency. The provider should
be able to deliver half of the contractual FCR within 15 seconds. The whole amount
should be supplied after 30 seconds and should stay activated for at least 15
consecutive minutes [33].
2.2.3.2 Frequency Restoration Reserves
Once the FCR have stabilized the grid frequency, Frequency Restoration Reserves
(FRR, formerly called “secondary reserves”) are triggered to bring the frequency back
from the quasi steady state to the nominal 50 Hz within 15 minutes.
In Belgium the FRR consist of two elements: contracted reserves and free bids. The
contracted reserves are required by Elia in order to keep a total capacity of 140 MW
upwards and downwards available at every time [32].
On the other hand, free bids can be offered by all market participants that sign a
contract to provide FRR, even when the reserved capacity is equal to 0 MW. Free bids
are voluntary and the tendering process occurs the day before the actual delivery [32].
The activation of FRR is selected separately for upward and downward reserve. The
selection is performed following an economic ranking as shown in Figure 4. The lowest
prices for up-regulation are activated first; in contrast, the largest prices for
down-regulation have priority.
Virtual Power Plants in the Electricity Market 15
Figure 4: Merit-order mechanism for the selection of upward and downward bids. The lowest
prices for upward regulation and the highest prices for down regulation are selected first.
The remuneration for providing secondary control power is divide in two parts: those
participants that offered contracted reserves, receive a fee per MW per hour for the
capacity reservation. Additionally, all the participants (i.e., free bids and contracted
capacity) that are selected are paid for the energy provided. The remuneration is equal
to their own bidding price (i.e., the energy provided is paid as bid) [32].
2.2.3.3 Replacement Reserves
Replacement Reserves (RR, formerly called “tertiary reserves”) is the mechanism used
to relieve FRR when the grid frequency deviation lasts for longer than 15 minutes. This
kind of reserve is activated manually by the operator. Similarly to the FRR a generator
providing RR gets paid for the reserved capacity and for the energy delivered in case
of activation [33].
2.3 Virtual Power Plants in the Electricity Market

As explained in the previous Section 2.2, a traditional power plant has several
opportunities to participate in the electricity market. For instance, it can bid electricity
on the day-ahead market or provide control reserves. Similarly, it is expected that a
VPP composed by controllable or programmable devices (e.g., CHP and heat pumps)
can also offer considerable flexibility to these markets. Hence, it is instructive to study
and evaluate several options to offer this flexibility in the electricity market. This section
provides a literature survey regarding three different operation strategies that enable
the participation of a VPP, directly or indirectly, in the day-ahead and reserve market.
The first concept is the ‘active participation in the balancing markets’. This implies that
the VPP operator contracts with the TSO to reserve some capacity with the conditions
explained in Section 2.2.3. The second strategy, or ‘self-balancing’, aims to minimize
the total imbalance error of the VPP portfolio. It indirectly affects the reserve market
by reducing the amount of reserves needed to balance the grid. The final concept
analyzes the possibility to provide ‘passive balancing’. This implies changing the
position of the VPP at near real time with the goal to reduce the total system imbalance.
2.3.1 Active Participation in the Balancing Market

In the literature, several studies assess the possibility of offering ancillary services to
the electric grid using DG devices. These services range from providing reserves to
balancing the grid or enhancing the voltage stability. Wang, et al., [35] investigate the
possibility to provide ancillary services with an aggregation of individual heat pumps
(HP). The conclusions indicate that HP aggregation can help to improve the stability of
the power grid.
Providing spinning reserves using Active Demand Response (ADR) is a common topic
of study since it is believed that there is a large potential of using flexible loads to
support the reserve power system [36]. Weckx, et al., [37] have implemented a control
algorithm that enables a cluster of loads to provide primary control. Ioakimidis and
Oliveira [38] have developed a stochastic dynamic programming (SDP) tool that
enables an aggregator of distributed generators and controllable loads to offer tertiary
reserve power. Ruthe, et al., [39] have evaluated the potential of VPP to participate in
frequency control stabilization. Molina-Garcia, et al., [40] have analyzed the
contribution of ADR to primary frequency control in isolated power systems.
Nevertheless, there are still major barriers that hinder the incorporation of ADR in the
reserve power market. Biegel, et al., [41] mention that both the minimum-energy
requirement to enter the balancing market and the uncertainty regarding the own
generation hamper the penetration of ADR into the reserve market. Koliou, et al., [42]
also highlight the minimum bidding volume as one of the factors that undermine the
penetration of DG in the German balancing market. Van Dievel, et al., [43] remark that
the regulatory framework regarding demand response in distribution grids is
incomplete. This hinders the participation of this technologies in the energy market.
A different promising technology that can improve grid stability is the electric vehicle
(EV). In the PhD dissertation of Vandael [44] several control strategies for EVs that
provide ancillary services to the grid have been developed and validated. Andersson,
et al., [45] have calculated that the maximum profits that can be obtained by offering
secondary reserve power with EVs are in the range of 30-80 € in the German case.
Dallinger, et al., [46] estimate profits of around 180 € per car and per year. Druitt and
Früh [47] show that a fleet of EVs can help balancing the grid. Nevertheless, they also
mention that the economic benefits for the car owner are limited in the studied market
environment. Similar results are reported by Jargstorf and Wickert [48]. According to
them, electric vehicles are not suitable to offer reserve power.
Mashhour and Moghaddas-Tafreshi ([49], [50]) develop a nonlinear mixed-integer

program that enables the participation of a VPP in the energy and reserve market. The
problem is solved using genetic algorithms (GA). It includes several DG devices,
electrochemical storage and load shedding options. Niese, et al., [51] give a conceptual
description of a VPP operated with a multi-agent system (MAS). The VPP is controlled
not only to provide energy but also ancillary services. Furthermore, Varkani, et al., [52]
show that combining the operation of a wind power plant (WPP) with a pumped-hydro
storage (PHS) can significantly increase the added value of the portfolio.
Finally, von Roon [53] and Steck [54] focus their research on micro-CHPs. In [53], the
technical feasibility of providing FCR and RR making use of micro-CHPs is analyzed.
Steck [54] develops and compares several algorithms to provide reserve power using
an aggregation of micro-CHP. A summary of the more relevant works regarding active
participation of DG devices in the balancing market is provided in Table 3.
As the active participation of micro-CHPs in the balancing markets has been already
assessed in previous works, this PhD thesis focuses more on other market
opportunities such as the self-balancing and passive balancing explained in the
following sections.
Table 3: Literature review: VPP to provide grid services.
Publica Service VPP Technique Main findings

tion components
[35] Voltage ADR: HP Two step multi- Distributed HPs can be
stability objective aggregated to increase the
optimization stability of the grid.
[36] Reserve ADR: HP, NLP Responsive loads can
power EV, increase flexibility of the
grid.
Electrolyzer
[37] Reserve EV MAS Clustered loads can emulate
power Water heater primary frequency control
provided by conventional
generation.
[38] RR ADR SDP Providing tertiary reserve
Storage power with an aggregation
of small generators and
EV controllable loads can lead
Micro-wind to profits for both the micro
turbine grid and the clients.
PV
[39] FRR Flexible energy Simulation Flexible energy devices can
devices be controlled to provide FRR.
[40] Reserve ADR Simulation ADR can substantially
power Steam contribute to improve
frequency stability and
HP relieve FRR.
Wind power
[41] Reserve ADR: Using intra-day markets to
power HP adjust the operation of
flexible loads increases the
Refrigerator feasibility to provide reserve
EV bids.
[42] Reserve ADR The minimum bidding
power volume, the minimum bid
duration and the binding up
and down bids are the most
important mechanism that
limit the penetration of DG in
the German balancing
system.
[43] ADR The current regulatory
framework concerning
demand response in
distribution systems is
inadequate or incomplete.
[44] Reserve EV MAS Centralized coordination of

power EV can provide larger
amounts of power for
ancillary services.
Decentralized control
facilitates large scale
integration.
[45] Reserve EV Providing regulating power
power in the German market can
lead to maximum profits up
to 80 € per vehicle and
month.
[46] Reserve EV Providing negative
power secondary regulation
capacity is the most
profitable way in which EV
can participate in the
German regulation markets.
[47] Grid EV MAS Optimal EV charging can
balancing help to reduce impact of
variability of large amount of
wind.
[48] Reserve EV Simulations Analyzes a business case of
power providing reserve power
with EVs and concludes that
these vehicles are not
suitable to offer reserve
power.
[49][50] Reserve Storage load NLP solved with A VPP can provide spinning
power genetic reserve regardless of its
algorithms main role (Consumer or
producer).
[51] Reserve - MAS Concept overview: Trading
power active power and ancillary
services, including reactive
scheduling in case of
activation
[52] Reserve WPP MINLP Integrating WPP and PHS
power PHS increase the added value of
the portfolio.
[53] Reserve micro-CHP It is technically possible to
power provide tertiary reserve
power using micro-CHPs
[54] Reserve micro-CHP LP Development of several
power MILP strategies to plan optimal
energy and reserve power
Heuristic bid.
2.3.2 Self-Balancing
The strategy of self-balancing consist of aggregating diverse DG devices in a portfolio
and minimize the schedule deviation of the whole VPP portfolio. Thus, the VPP is not
actively providing services to the grid but indirectly reducing the residual imbalance
volume that needs to be compensated by the system operator.
Kok, et al., [55] and Bliek, et al., [56] introduce a demonstration case of the
self-balancing. Several DG technologies are aggregated and coordinated to reduce the
WPP imbalance. The measurements demonstrate that, in practice, using MAS allows
achieving a reduction of 40 % of the total imbalance volume. Additionally, Bliek, et al.,
[56] demonstrate that using CHPs and HP to reduce imbalance, the user’s comfort is
not foregone.
This practical experience tests the technical feasibility of a VPP to reduce imbalance
volumes however, Kok, et al., [55] and Bliek, et al., [56] do not evaluate the economic
impact thoughtfully. In other words, the possibility that at some point it might be more
expensive to correct the imbalance internally than to pay for the imbalance tariff was
not taken into account. This case was reported in [57]. Angarita and Usaola [57] study
the joint operation of a WPP and a hydro power plant. The results show that,
rescheduling the hydro power plant only make sense when the imbalance penalties
are very large. Larger benefits can be obtained improving the quality of the WPP
forecast.
Houwing ([58] [59]) investigates the idea of balancing a wind turbine making use of a
micro-CHP aggregation. In [58] it is reported that it is possible to reduce 73 % of the
wind forecast error using micro-CHP and 38 % of the associated imbalance cost.
However, though the cost reduction as a whole is significant, the total savings per
individual unit are very low.
Other technologies such as EVs and ADR seem to give better economic benefits when
used for self-balancing ([60], [61]). Mohammadi, et al., [61] conclude that ADR is not
only capable of decreasing the imbalance volume when operating together with a wind
power plant but also of reducing the imbalance penalties. Mekonnen, et al., [62] and
Kessels, et al., [63] have investigated the use of ADR for balancing wind. The results
show large economic benefits of using ADR. Leterme, et al., [64] have developed an
algorithm that control EV for the purpose of balance wind-power.
With respect to wind power balancing, Scharf and Amelin [65] have investigated the
value of self-balancing in the light of higher wind power penetration. Vogstad [66]
hase assessed the possibility to minimize imbalance volume coordinating different
generation units with complementary characteristics such as wind power and

hydropower.
Finally, Pandžić, et al., [67] describe the stochastic optimization of a VPP that consist
of a WPP, a conventional power plant (CPP) and a pumped hydro storage basin.
According to Pandžić, et al., [67] large profits can be expected from the aggregation
of these plants. This can be achieved without larger disturbance from the individual
operation. To summarize, Table 4 gives an overview of the consulted literature on
VPPs and self-balancing.
Table 4: Literature review: self-balancing using VPPs.
VPP Components Technique Main Findings

[55] WPP MAS Coordinating the operation of
CHP different DG an imbalance
volume reduction of 40 % can
Cold storage be reached.
Emergency generator
HP
[56] HP MAS Intermittency of photovoltaics
CHP (PV) resources can be
balanced using DG appliance
PV without sacrificing users
comfort.
[57] PHS MILP Only under large imbalance
WPP penalties it is economically
profitable to compensate the
WPP imbalances changing the
hydro schedule. The best
option is to improve accuracy
of the WPP predictions.
[58][59] WPP MILP Clustering micro-CHP can
CHP reduce the imbalance volume
by 73 % and the cost
associated to this imbalance
can decrease by 38 %.
[60] WPP Simulates a Danish island as a
CP VPP. The results show that
the schedule deviation can be
EV compensated using EV.
[61] ADR LP Flexible load can balance
WPP uncertainty of RES and reduce
imbalance penalties.
[62] ADR Develop an optimization
Thermal model that aims to minimize
wind imbalance using ADR.
WPP
[63] ADR Large profits can be achieved

Thermal by using ADR to minimize
wind imbalance. This profits
WPP depends largely on the
imbalance settlement.
[64] EV SDP Dynamic programming
enables the coordination of
EV to balance wind power
errors.
[65] Hydro LP Develop an algorithm to
WPP evaluate self-balancing in the
light of higher wind power
CPP penetration.
[66] Hydro LP To profit from self-balancing it
WPP is necessary to have a
portfolio with many different
CPP power plants.
[67] WPP Stochastic Large profits can be expected
CPP MILP from VPP setup without large
disturbance in the operation
PHS of the individual plants
Even though self-balancing strategy has been broadly studied in the literature, some
research gaps can be identified. From the reviewed literature, Kok, et al., [55] and
Bliek, et al., [56] do not consider the economic benefits of providing self-balancing.
Other studies deal with large power plants or ADR ([57], [60], [61], [62], [63], [65],
[66], [67]) that are not influenced by the demand constraints as in the case of
cogeneration. Only Houwing ([58], [59]) focuses on micro-CHPs. However, these
studies are evaluated during one month in winter only. Thus the seasonal effect on
the heat demand is neglected.
2.3.3 Passive Balancing

As mentioned in Section 2.2.3, in Belgium a BRP is allowed to contribute passively to
restore the system imbalance. In other words, a BRP can participate in balancing the
system even when it is not actively selected in the merit-order mechanism explained
in Section 2.2.3. This occurs when the internal imbalance of the BRP has the opposite
direction of the total system imbalance.
As shown in Table 2, if the position of the BRP contributes to restoring the system
balance, it receives an economic reward equal to the marginal incremental or
decremental price for up and down regulation.
Cogeneration Concept 23
Passive balancing, however, entails a larger risk for the BRP than the active
participation in the balancing market. This risk stems from the uncertainty regarding
the direction of the imbalance and the evolution of the imbalance prices. Nevertheless,
passive balancing is seen as an alternative to integrate DG in the balancing system
[68].
Additionally, a comparison between countries with and without passive contributions

indicates that the use of passive balancing leads to a reduction in the total balance
management cost [69]. However, to benefit from passive balancing, there is not only
a need for an adequate design of the imbalance tariffs, but also a frequent (almost
real time) publication of the information regarding the imbalance prices [68].
In the reviewed literature, only three studies explicitly consider passive balancing
([70], [71], [72]). Abdisalaam, et al., [70] have shown that potential economic benefits
can be achieved by providing real-time balancing services with an aggregation of
flexible residential loads. Lampropoulos [71] has assessed the economic benefits of a
battery energy storage system that provides passive balancing. Chaves-Avila, et al.,
[72] have considered the case of a wind power producer who bids his electricity in the
day-ahead market and who can adjust his output in real time.
This PhD thesis contributes to the passive balancing literature by assessing the
possibility of real-time balancing making use of micro-CHPs.
2.4 Cogeneration Concept

“Combined heat and power” (CHP) plants are generation units that produce
simultaneously thermal and electrical power10. The advantage of CHP in comparison
with other DG technologies such as PV and wind turbines is its controllable output.
Additionally, when operated together with a thermal-storage tank, it is possible to
detach the heat delivery from the electricity generation, increasing the operational
flexibility.
Compared to conventional power plants, CHP units can achieve higher fuel utilization,
as is illustrated in Figure 5. This figure compares separated generation of heat and
power against the operation of a CHP unit. In the former case, the electricity is
10
Although CHP units deliver both thermal power and electrical power, the former is usually
referred as “heat” and the latter as “power”. One should, however, always be careful to
distinguish between thermal and electrical output products, with can be “power” (in the physical
sense as rate of change of “energy”) and “energy” (in the physical sense as the time integral of
power, = n8 o^$_?$).
R
provided by a combined cycle gas turbine (CCGT) with an electric efficiency of 55 %

and the heat by a boiler with a thermal efficiency of 90 %. The efficiencies of separate
production are denoted by &( . The electric and thermal efficiencies of the CHP are
respectively, 35 % and 50 %. The efficiencies of the CHP are denoted by ( . Looking
at the figure it is clear that the separated generation requires larger amounts of
primary energy (1.2 instead of 1.0) to generate the same amount of electricity and
heat [73].
fuel “power”) F =1 for the CHP, and both delivering the same output, E and Q . & . and Z are
Figure 5: Comparison of CHP against separated generation for a fuel input (in terms of primary
Z
the efficiencies for separate production and CHP, respectively. The use of cogeneration leads
to significant fuel savings [73].
Thus considerable primary energy savings are one of the benefits that can be achieved
from the installation of CHPs. In line with the energy savings, a reduction on
greenhouse gases emissions is also expected, although this largely depends on the
‘fuel mix’ of the local electricity system. This PhD thesis focuses mainly on micro-CHPs
technology and on CHPs connected to district heating (DH) systems. The next sections
give an overview of the characteristics of these technologies.
2.4.1 Micro-CHPs
According to the European directive on the promotion of cogeneration (Directive
2004/8/EC) the term micro-CHP concerns all cogeneration devices with a maximum
electrical output of 50kWe. The main prime movers for micro-CHP systems are: internal
combustion engines (ICEs), Stirling engines, micro-turbines and fuel cells.
Internal combustion micro-CHPs are widely available in the market. They are usually
based on spark ignition engines [74]. The electric efficiency of these engines is in the
range of 25-35 %, whereas the thermal efficiency ranges from 50 to 65 % [75], [76].
ICEs are able to operate at part load though with a slight decrease in electrical
efficiency. The major advantages of ICEs over other CHP technologies are the low
Cogeneration Concept 25
capital cost, low maintenance cost and long service life. Some disadvantages are the
level of noise and relatively high NOx emissions [59], [74].
Stirling engines are based on external combustion engines that work on a closed
regenerative thermodynamic cycle. In the Stirling cycle a working gas is continually
compressed and expanded by repeatedly heating and cooling it. This causes the
movement of a piston [76].
The major advantages of Stirling engines are fuel flexibility, low emissions, few
vibrations and noise. On the other hand, the most important disadvantage is the low
electric efficiency (in the range of 10 to 20 %). Furthermore, though their performance
at part load is good, their start up time is long [74], [76].
Micro-turbines are small versions of their large-scale counterparts. Their electric

efficiency is around 30% and the fuel utilization ratio (FUR)11 in CHP operation is
approximately 80 %. In comparison with ICE, micro-turbines are more compact, lighter
and have a lower number of moving parts. In addition, micro-turbines have a high
outlet temperature that can be used in several applications. The downside of micro-
turbines is the low efficiency at part load operation and the need for skilled personnel
for maintenance.
Fuel cells represent an emerging technology that generates electricity and heat by
means of an electrochemical reaction between fuel and oxygen. The most common
fuel is hydrogen, natural gas can be used, although a reformer is needed for low
temperature fuel cells.
Fuel cells can achieve larger electrical efficiencies than other micro-CHP units [74]. The
advantages of fuel cell micro-CHP are low noise level, potential low maintenance, due
to fewer moving parts and good part load operation. Nevertheless, it is recommended
to operate fuel cells at nominal output due to life time considerations. The major
drawbacks of fuel cells are the large investment cost and the short life time. Table 5
summarizes the most important aspects of the previously explained CHP technologies.
11
primary energy, FUR= + .

The fuel utilization ratio is the ratio of the useful energy—both electric and thermal—to the
Table 5: Characteristics of CHP prime movers [74], [75], [76].
Technology ICE Stirling Micro-gas Micro-Fuel

Engines turbines cell
Typical range 5 – 6000 3 - 1500 35 - 300 0.7 - 400
(kWe)
Electric efficiency 25 – 35 10 - 20 25 - 30 35 - 40
( ) (%)
Fuel utilization 65 – 90 75 - 90 65 - 90 85 - 90
ratio (%)
Part load operation ok ok low excellent
2.4.2 District Heating Cogeneration

Under appropriate circumstances, district heating may be an important technology that
is able to provide cost-effective, environmentally friendly heat [77]. Cogeneration has
been widely applied as a heat source for DH. Typical prime movers used for DH
applications are steam turbines, gas turbines and internal combustion engines
(otherwise called, reciprocating engines).
Steam turbines are extensively used in classical power plants; their operation is based
on the Rankine cycle. The heat generated from the combustion of the fuel is used to
pressurize steam. This steam is expanded in a turbine to create mechanical rotation
[78]. The remaining heat in the steam can be extracted to be used in several
applications.
CHP with steam turbines can achieve large FUR (of the order of 80 %). Nevertheless,
their electric efficiency tends to be low (in the range of 14-35 %). Additionally, their
part load performance is poor [79].
Gas turbines are the most widely spread prime movers used for DH. The operation of
a gas turbine starts by compressing the air and heating it in a combustion chamber.
The hot combustion gas mixture is expanded in a turbine generating mechanical
energy. The remaining hot exhaust gases are recovered to generate useful heat [78],
[79]. Electrical efficiencies are in the range of 25-40 % at full load, during part load
operation the efficiency decreases significantly.
Reciprocating engines are internal combustion engines that operate with the same
principles as automotive engines. There are two main types of reciprocating engines:
Summary and Conclusions 27
compression ignition (diesel engines) and spark ignition (Otto cycle) engines (usually
fuelled with natural gas, although gasoline (petrol) would be also possible. The
electrical efficiencies of diesel engines range from 35-55 %, while gas or Otto engines
have lower efficiencies (30 % to 50 %) and are also smaller in size. The major
advantage of reciprocating engines over other technologies is their low investment
cost and their good performance record. Table 6 gives an overview of the
characteristics of the most important CHP technologies used for DH [79].
Table 6: Characteristics of CHP-DH prime movers [80].
Output αe [%] for loads FUR E/Q

range 100 % 50 %
[MW]
Steam turbine 0.5-100 14-35 12-28 60-85 1:2 → 1:10

Gas turbine 0.1-100 25-40 18-30 60-80 1:1 → 1:3
Diesel engine 0.07-50 35-45 32-40 60-85 1:1 → 1:1.2
Otto engine 0.05-20 27-40 22-35 60-85 1:1 → 1:3
FUR=fuel utilization ratio
2.5 Summary and Conclusions

A virtual power plant can be defined as an aggregation of several distributed
generation devices that operate together in order to participate in the electricity
market. In this market, electricity is traded on the long term using bilateral contracts.
These contractual agreements can be adjusted in the day-ahead market. Afterwards,
during the actual day of the delivery, the difference between the contractual position
and the physical output can be traded in the intraday market or settled in the balancing
market.
There are several possibilities for a VPP to participate in both the day-ahead and the
balancing market. A first approach is to actively offer reserve capacity. This possibility
is usually limited to FRR and RR due to the strict technical constraints necessary to
provide FCR. The second possibility in fact tries to minimize the interaction of a VPP
with the reserve market by accommodating the imbalance errors within the portfolio.
This possibility will be evaluated in Chapter 4. A last approach is to indirectly help the
grid by modifying the dispatch in real time and creating imbalance in the opposite
direction of the system imbalance. This strategy will be analyzed in Chapters 5 and 6.
Nevertheless, in order to be able to provide services to the grid, some degree of

flexibility is needed. This flexibility largely depends on the kind of devices that compose
the VPP. This PhD thesis focuses on the role of cogeneration devices in a VPP,
specifically micro-CHP and district heating cogeneration are considered.
3. Preliminary Concepts
This chapter compares three different strategies to control CHP devices, namely:
heat-driven, electricity-driven and economic-optimization. The first one is the
traditional way to operate a CHP unit. It assumes that the CHP should follow the heat
demand and the electricity is taken as a by-product. In contrast, the second strategy
tries to follow the local electrical power demand. The last approach takes into account
the electricity and gas prices and aims to find the schedule that leads to the minimal
operational cost.
Sections 3.1, 3.2 and 3.3 outline the control strategies. Next, Section 3.4 describes the
case study and explains the assumptions made. Section 3.5 provides an extensive
discussion of the results. Section 3.5.1 compares the different strategies in terms of
the amount of thermal and electric power generated. The cost reduction is estimated
in Section 3.5.2; Section 3.5.3 analyzes the influence of the storage capacity and
Section 3.5.4 calculates the net present value (NPV) for the different strategies. Finally,
Section 3.6 summarizes the most important conclusions.
3.1 Heat-Driven Operation

The heat-driven operation seeks to meet as much thermal energy demand as possible
making use of the CHP device. This kind of control does not take into account the
electricity demand. The electricity generated is considered as a by-product that can be
used on site or fed into the electric grid. Furthermore, this algorithm disregards the
actual prices of electricity and gas.
This control strategy is justified by the assumption that a cogeneration device should
operate only when the heat generated can be directly used. This is due to the fact that
the electric efficiency of most of the commercial micro-CHP devices is low. As a
consequence, using the CHP to generate electricity at moments when the heat cannot
be used is inefficient. This situation changes slightly when a thermal-storage tank is
installed in the system, increasing the flexibility.
The heat-driven operation is implemented using heuristic rules as shown in Figure 6.

At each time step the algorithm checks whether the heat demand is greater than the
maximum thermal output that can be delivered by the micro-CHP. If this is the case,
29
30 Preliminary Concepts
the CHP operates at maximum thermal output. The remaining heat demand is covered
either discharging the thermal-storage12 or using the auxiliary boiler.
If the heat demand is lower than the maximum possible thermal output of the CHP
but still larger than the minimum thermal power output, the thermal output of the CHP
is equal to the heat demand. Finally, if the thermal load is lower than the lowest
thermal output limit of the CHP and there is no space left in the thermal buffer to store
heat, the heat demand is met by discharging the storage tank.
3.2 Electricity-Driven Operation

The electricity-driven control strategy aims to cover as much as possible electric power
demand while at the same time reducing the amount of energy that is fed into the
grid. Similar to the heat-driven strategy, this algorithm is based on heuristic rules.
The operation of the CHP depends mainly on the instantaneous electric power demand.
However, in this PhD thesis it is assumed that dumping excess heat is not allowed, the
status of the thermal-storage tank is also an important parameter that has to be
checked during every time step.
The algorithm is visualized in Figure 7. It can be summarized as follows. If the electric

power demand is higher than the maximum electric capacity of the CHP, the CHP
dispatches at maximum output level (i.e., it generates electricity at its rated capacity).
However, if excess heat cannot be stored in the thermal storage tank, the CHP
modulates down in order to reduce or avoid the excess heat.
As long as the electric power demand is higher than the minimum electric output level
of the CHP but below the rated capacity, the CHP follows the electric power demand.
This is possible only if the excess heat can be accommodated in the buffer; otherwise,
the CHP decreases its output until the excess heat can be stored in the thermal buffer.
In Figure 7, the heat demand is not mentioned since the heat generated by the CHP
is considered a by-product. Nevertheless, the implemented algorithm ensures that the
heat demand is always met by using the heat generated by the CHP, the auxiliary
boiler or by discharging the storage tank. In the figure, the excess heat refers to the
thermal power that remains after the heat demand is met.
12
In this work the words “thermal-storage buffer” and “thermal-storage tank” are used as
synonyms.
Electricity-Driven Operation 31
Figure 6: Heat-driven operation of a CHP system that consists of a prime mover, a thermal-storage
tank and an auxiliary boiler. The CHP tries to meet as much heat demand as possible. The excess
heat is stored in the thermal-storage buffer and used in future time steps.
Figure 7: Electricity-driven operation. The CHP tries to follow the instantaneous electric power
demand. The heat generated is used to meet the heat demand. Excess heat is stored in the
buffer.
3.3 Economic-Optimization Model

The economic-optimization model uses a linear program to find the optimal schedule
of a cogeneration device that minimizes the total cost. A linear programming is a group
of (linear) equations that minimizes or maximizes an objective function as shown in
Equation (3-1):
UZ[ R
u7 tv
t
(3-1)
Economic-Optimization Model 33
Linear programs are subject to several constraints such as inequalities (Equation

(3-2)), equalities (Equation (3-3)) and bounding constraints (Equation (3-4)):
wt ≤ 6 (3-2)
w*y t = 6*y (3-3)
z6 ≤ t ≤ {6 (3-4)
In these equations t represents the vector of variables to be determined, w and w*y

are matrices of known coefficients associated with t through a linear relationship while,
6 and 6*y are vectors of known parameters and z6 and {6 represent respectively, the
lower and upper bounds of t.
This thesis uses the commercial software GAMS to formulate the linear program and
the solver CPLEX to solve the equations. At this point, it is important to remark that
the following equations will be repeatedly used in the next chapters with small
modifications.
In general terms, the objective function aims to maximize profits or minimize cost. In
this specific case the objective function aims to minimize the total operational cost of
the cogeneration system. This is explained in Equation (3-5):
min 6 = ^- + -

+ -# − "-# _
(3-5)
-k
The operational cost is equal to the sum of the fuel cost of the CHPs and the
boilers - , - plus the cost of the electricity that has to be bought from the
grid to meet the remaining electricity demand -# minus the revenues due to the
electricity that is sold to the grid "-
+(
.
Additionally, several technical constraints control the operation of the CHP unit:
!- = 3-5 ∙ - + 6-5 ∙ - (3-6)
- = 34 ∙ - + 64 ∙ - (3-7)
Equation (3-6) relates the electric - and the thermal power output !- of the
power - and the primary fuel consumption - of the CHP unit.

CHP. In a similar way, equation (3-7) describes the relationship between the electric
This CHP model is used in chapters 4 and 5. Both equations represent linear
regressions calculated from measured data of commercial CHP devices provided by the
IEA annex 54 and reported in [76] the characteristics are illustrated in Figure 10. The
coefficients ath, ap are the slopes of the lines and bth, bp are the intercepts. These
parameters depend on the characteristics of each unit. The binary variable - represent
the on/off status of the CHP device.
The thermal energy balance is given in Equation (3-8):
!- = !- + !-
− !- (3-8)
Equation (3-8) ensures that the heat demand !- is met at any time instant using
the CHP!- , the boiler !- or the heat stored in the thermal-storage tank. The
variable !- represents the average thermal power charged to or discharged from the
heat storage tank.
The thermal buffer used in the research reported in this thesis assumes perfect
stratification of the storage tank. The thermal energy content of the storage tank is
calculated using Equation (3-9):
!- = &,- ∙ !-

+ !- ∙ ∆$ (3-9)
Where !- is the state of charge of the storage at each time instant. The time step
∆t considered in this chapter is 1 hour. The efficiency of the storage tank13 &,- is
assumed to be constant. Recall that in this thesis it is assumed that excess heat cannot
be dumped.
The primary energy consumption of the boiler can be estimated as in Equation (3-10):
!-
-
=
(3-10)
&' ()*+
In this equation, - corresponds to the fuel consumption of the boiler and ηboiler is
the efficiency of the boiler and it is assumed to be constant. The fuel cost of the CHP
system (boiler and primary mover) can be calculated as stated in Equation (3-11):
13
The efficiency of the storage tank represents the percentage of thermal energy that is preserved
by the storage after it has been stored during one time step of 1 hour.
Application to a Case Study 35
- + -
= d- + -
h ∙ / 12 ∙ ∆$ (3-11)
The primary-fuel (usually natural-gas) price is represented by / X . On the other

hand, it is assumed that, the electric output of the CHP can be used locally or sold in
the electricity market as expressed in Equation (3-12):
- = - NIJN + - HLM

(3-12)
In this equation, - is the total electric power delivered by the CHP, - NIJN is the

part that can be used internally in the house and - HLM is the electricity fed back

into the grid.
Consequently, the revenues obtained from selling or using locally the electricity
generated are estimated in Equation (3-13):
"-# = /-0 ∙ - HLM ∙ ∆$

(3-13)
Where, /-0 represents the DA market price. The cost to buy the remaining electricity
from the grid can be estimated as:
-# = d-0T − - h ∙ /-)

<) ∙ ∆$
NIJN
(3-14)
In this equation -0T corresponds to the electric power demand and /-)
<) the
price to buy electricity from the grid.
Equation (3-15) limits the amount of electricity that can be consumed locally:
- NIJN ≤ -0T

(3-15)
Additional constraints are included to prevent exceeding the operational limits of the
prime mover. This is summarized in Equations (3-16) to (3-19):
0 ≤ !- ≤ !O<P

(3-16)
0 ≤ !-
≤ !O<P
(3-17)
!O(F

∙ - ≤ !- ≤ !O<P
∙
- (3-18)
O(F

∙ - ≤ - ≤ O<P

∙ - (3-19)
3.4 Application to a Case Study

The previously described control strategies are applied to a cogeneration device
installed in a multi-family house. The objective is to compare the performance of the
control strategies in energetic and economic terms. The studied building has a yearly
heat and electricity demand of 120 MWhth and 11 MWhel, respectively. The analyzed
electric and thermal loads come from measured data provided by the LINEAR project14.
The CHP system is illustrated in Figure 8. It consist of an internal combustion gas

engine as prime mover, an auxiliary gas boiler to cover the peak demand and a
perfectly stratified thermal-storage tank. The heat demand of the house should be
always met either by the CHP, the auxiliary boiler or the heat discharged from the
thermal-storage tank. The electricity generated by the CHP can be used to meet the
electricity demand of the house or it can be fed into the grid. Additional electricity
demand can always be balanced by the grid.
Figure 8: Schematic representation of the analyzed CHP system. It consists of a prime mover, an
auxiliary boiler and a thermal buffer. The electricity generated by the CHP can be used either to
meet the internal demand or fed into the grid.
3.4.1 CHP Sizing

The ‘maximum rectangle’ technique described in [81] was used to determine the
installed capacity of the CHP. In order to apply this methodology, the heat demand
has to be sorted in a descending order to obtain the so called ‘load duration diagram’
(see Figure 9). Afterwards, the biggest rectangle that can be inscribed under the load-
duration curve (also known as monotonic curve) is obtained. The intersection between
the rectangle and the vertical axes corresponds to the optimal thermal capacity for the
14
http://www.linear-smartgrid.be/
micro-CHP device (point A in Figure 9). The remaining heat demand should be covered
by an auxiliary boiler.
80
Thermal load [kW]
60
40
20
A
0
0 2000 4000 6000 8000 10000
Duration [h]
Figure 9: Maximum rectangle method: the largest rectangle (dashed lines) that can be
inscribed under the monotonic curve (black) determines the thermal capacity of the CHP (point
A).
The results of the maximum rectangle method indicate that for the studied dwelling
the CHP should have a thermal capacity of approximately 13kWth. Consequently, the
micro-CHP Ecopower plus was selected as model for the simulations.
It must be noted that the largest rectangle method is only “correct” in the absence of
thermal-storage. If thermal-storage is present, the largest rectangle does not indicate
the “optimal” installed thermal capacity. However, for practical purposes, the largest
rectangle method is still assumed to be appropriate.
The Ecopower micro-CHP is a gas driven engine that enables full modulation between
1.2 and 4.5 kWe (3.8 to 12.5 kWth). The steady state characteristics were measured
and provided by [76]. They are shown in Figure 10.
21
18
Primary/ Thermal
power [kW]
15
12
9
6
3
0
0 1 2 3 4 5
Electric power [kW]
Electric vs primary Electric vs Thermal
Figure 10: Technical characteristics of the micro-CHP Ecopower plus. The figure shows the
linear relationship between generated electric energy and primary fuel energy (dashed line);
and between generated electric energy and thermal energy.
Clearly, there is a linear relationship between the electric and thermal output, as well
as between the electric output and the primary fuel use (see Figure 10). Thus the
value of the parameters ath, ap, bth and bp is obtained using a linear regression as
reported in Table 7.
Table 7: Steady state characteristics of the commercial CHP device Ecopower that was used
as prime mover in the case study of this chapter.
O<P
[kW ]
e O(F

[kWe] αth bth αp bp
Ecopower 4.7 1.2 3.88 0.80 2.54 0.69
3.4.2 Gas and Electricity Prices

For this work the gas price is assumed to be constant and equal to 0.04 €/kWhp.
Afterwards, the influence of this parameter will be assessed by performing a sensitivity
analysis (see Subsection 3.5.4.2).
The price to buy electricity from the grid is taken to be equal to 0.15 €/kWhe at night
and 0.22 €/kWhe during the day. This price is indicative of the tariff applied to
residential users in Belgium. The NREL [82], suggests that the remuneration that
renewable and distributed energy generators receive for the electric energy fed into
the grid should reflect the status of the electric system. For this reason, the present
work uses day-ahead market prices as a proxy to remunerate the excess of electricity
fed into the grid [28].
It is important to highlight that there is no clear agreement regarding the market

structure for participants of a VPP. Thus this model employs both retail and wholesale
market prices. In the future, the electric system regulator should establish the market
rules.
3.4.3 Sizing of the Thermal-Storage Tank

The capacity of the thermal-storage tank is expressed in relation to the thermal energy
generated by the CHP during one hour. The term relative storage capacity (RSC),
defined in [83], will be used to denote the ratio between the storage capacity of the
thermal-storage tank and the thermal output of the CHP during one hour time step, as
shown in Equation (3-20):
!O<P

"e =
!O<P
(3-20)

∙ ∆$
is the maximum storage capacity, ! is the

To recall, in this equation, !O<P O<P
maximum thermal output of the CHP and ∆$ is the time step. In this particular case
one hour. The RSC is taken to be 2. The influence of this parameter is assessed later
(see Section 3.5.3).
This thesis uses a model of a perfect stratified storage tank. The capacity of the storage
tank is estimated using Equation (3-21):
!O<P
= U ∙ 9 ∙ ∆%
4 (3-21)
where U is the mass of water in the storage tank in kg, 94 is the specific heat capacity
of water, which is equal to 4.18 J/(kg K) and ∆% is the temperature difference. In this
particular case, it is assumed that cold temperature in the tank is 40°C and the hot
temperature 70°C. The size of the storage tank is 690 liters.
Additionally, in the following chapters it is assumed that the temperature of the hot
water supplied by the CHP unit is always greater than the hot temperature of the
storage tank.
3.4.4 Reference Case

The studied control strategies are compared against a reference scenario in which it is
assumed that the heat demand is met making use of a boiler with an efficiency of
90 % and the electricity is bought from the grid at residential price.
3.5 Results and Discussion

This section presents a discussion about the obtained results for the case study defined
in Section 3.4. First, in Section 3.5.1 several parameters are analyzed such as the
electricity and heat generation for each strategy. Afterwards, in Section 3.5.2 the cost
reduction with respect to the reference case is calculated. Finally, the net present value
is calculated in Section 3.5.3 and the influence of the investment cost and the gas price
are assessed in Subsection 3.5.4.1 and 3.5.4.2, respectively.
3.5.1 Electricity and Heat Generation

Table 8 gives the total thermal and electric energy generated by the CHP during one
year. The results are shown for each of the studied strategies. Table 8 shows that with
the electricity-driven strategy, more than half of the heat demand is met using the
auxiliary boiler. The CHP generates less electrical and thermal energy than when the
other strategies are applied.
On the other hand, the heat-driven and economic optimization give similar results. The
amount of thermal energy generated by the CHP in the heat-driven strategy equals to
82 MWth, whereas, in the optimization case the CHP generates 78 MWth. (The CHP
generates 5 % less thermal energy when controlled with an optimization algorithm).
Table 8: Amount of electrical / thermal energy generated by the CHP system over a year.
Heat-Driven Electricity-Driven Economic
Optimization
CHP Electricity [MWh/year] 27.4 18.5 26.1
CHP Heat [MWh/year] 81.9 56.6 77.6
Boiler [MWh/year] 39.6 64.0 43.5
Figure 11 compares the share of the different ways of heat production for the different
cases. As the system is not allowed to dump heat, the total amount of thermal energy
Results and Discussion 41
produced by the CHP should be used inside the house to meet the heat demand.
Additional heat demand should be met using the auxiliary boiler.
In the figure, the black area represents the amount of heat generated by the auxiliary
boiler, whereas the blue section corresponds to the thermal energy delivered by the
CHP (directly, or with a time delay via the thermal-storage buffer). Around 65 % of
the heat demand can be met by the CHP when the heat-driven and
economic-optimization controls are used. Using the electricity-driven algorithm, 47 %
of the heat demand is met by the CHP.
Figure 12, shows the electricity use. The yellow area represents the amount of
electricity imported from the grid. The black part corresponds to the self-consumption
of electricity. Finally, the blue area equals to the amount of electricity that is fed into
the grid.
Using the electricity-driven strategy, almost the total internal electrical demand can be
met by using the CHP. The remaining 3 % is bought from the grid. Additionally, 7 MWh
are fed into the grid. By comparison, the heat-driven and optimization strategies buy
only 5 and 10 % of electrical energy respectively and feed in around 15 MWh per year
(being approximately 55 % of the total electricity generated).
As mentioned before, it is important to remark the resemblance between the

heat-driven and the economic-optimization algorithms. Both control strategies produce
very similar results with respect to heat and electricity generation and use. This is due
to the fact that the economic-optimization finds it profitable to use the micro-CHP
mainly when the heat demand is high and this is the main idea behind the heat-driven
control.
This observation is explained in Figure 13. This figure compares the heat-driven (left
panels) and the economic-optimization (right panels) strategies. The figure shows the
heat demand and generation for three days, characteristic for the three different
seasons (i.e., winter, intermediate and summer time). The solid areas illustrate the
heat demand. The dashed lines correspond to the thermal energy production of the
CHP, while the solid lines represent the thermal energy charged to or discharged from
the storage tank.
140
Heat production [MWh/year]
120
100
80
60
40
20
0
-20
REF ELECT DRIVEN HEAT DRIVEN OPTIM
Aux. Boiler Tank losses CHP T
Figure 11: Thermal energy production for the different strategies. The black area represents the
heat produced by the auxiliary boiler. The blue section corresponds to the heat generated by
the CHP denoted as ‘CHP T’.
30
Electricity generation
25
[MWh/year]
20
15
10
5
0
REF ELECT DRIVEN HEAT DRIVEN OPTIM
in-house From grid To grid
Figure 12: Electricity imports, exports and on-site use for the different scenarios. The yellow
share corresponds to the amount of electricity that is bought from the grid. The black portion
represents the on-site use of the electricity generated by the CHP, while the blue area shows
the part of the electricity that is fed into the grid.
During the winter day, the operation of both strategies is very similar. The CHP is
operated most of the time serving as base load for the heat demand15. The same
situation arises during the intermediate season. In this case, however the difference
between the studied strategies is more notorious. The heat-driven operation tends to
follow the heat demand operating at part load when the heat demand is lower than
the maximal possible thermal output of the CHP.
Finally, during summer, the difference between both strategies is clear. The
heat-driven strategy operates the CHP mostly at part load. Whereas, the
economic-optimization control activates the cogeneration device less. However, when
it is activated it operates at maximum capacity when possible.
This fact indicates that the economic-optimization algorithm makes better use of the
thermal-storage buffer, this can also be observed in Figure 13. The efficiency of the
CHP at full load is larger than during modulation. Thus, even when the heat demand
is lower than the maximum thermal output of the CHP, the optimization delivers the
full capacity and the remaining thermal energy is stored in the thermal buffer. This
way, a larger amount of fuel can be saved.
It is expected that these results are valid for Stirling engine micro-CHPs as well. These
kinds of engines can achieve higher electrical efficiencies at full load [76]. Fuel cells
reach a high efficiency both at full and part-load operation [74]. However, experimental
evidence shows that part load operation accelerates the wearout of the device [84].
For this reason, the full-load operation is also recommended like it is scheduled in the
economic-optimization.
15 Recall that the auxiliary boiler meets the remaining heat demand however for illustration
purposes it was not shown in Figure 13.
Figure 13: Comparison between the heat-driven (left panels) and economic-optimization (right
panels) strategies for the different seasons. The gray area corresponds to the heat demand.
The dashed line represents the thermal power generated by the CHP and the solid line
corresponds to the thermal power charged to (negative values) or discharged from (positive
values) the storage tank.
3.5.2 Cost Savings

This section estimates the actual cost reduction obtained by installing a CHP system
and controlling it applying the studied algorithms. Towards this aim first the operational
cost is calculated for all control strategies as explained in Equation (3-5).
Table 9 summarizes the results. First, the yearly cost is given followed by the
percentage savings with respect to the reference scenario. The table shows that the
largest savings are achieved using the optimization strategy followed by the
heat-driven control. Using the electricity-driven strategy, the cost decreases 17 % with
respect to the reference case.
Table 9: Estimation of the operational cost for the different control strategies and cost savings
with respect to the reference scenario.
Reference Heat-Driven Electricity-Driven Economic-Optimization
Cost Cost Savings Cost Savings Cost Savings
Total [€/year] 7782 6265 19 % 6436 17 % 6090 22 %
The variation of the cost reduction throughout the year is analyzed in Figure 14.
Comparing the heat-driven and economic-optimization strategy, it can be deduced
that, as expected, the behavior during the heating season (i.e., winter time) is very
similar.
Nevertheless, during the intermediate and summer seasons the optimization performs
better, saving a larger amount of cost. This result can be explained by recalling Figure
13. That figure shows that the optimization algorithm tends to operate the CHP at full
load. This measure reduces fuel cost (at full load, the CHP has larger efficiency).
Additionally, it is remarkable that the electricity-driven strategy performs slightly better

than the heat-driven strategy during summer. During the latter season, the electric
demand becomes more prominent compared with the heat demand. Consequently, as
explained by Hawkes [85], it is more profitable to follow the electric demand than the
heat demand.
Looking further at Figure 14, it is important to mention that the larger savings are
obtained in the intermediate season. During winter, the large heat demand results in
large fuel cost to cover this demand. On the contrary, in summer the low heat demand
limits the savings opportunities. This is especially noticeable in July. This month has
the lowest heat demand and electricity demand compared to the rest of the year. As
a result, there is a visible reduction of savings in all strategies during this month.
30
Savings with respect to reference
25
20
scenario (%)
15
10
0
Jan Feb Ma Apr May Jun Jul Aug Sep Oct Nov Dec
ELECT LEAD HEAT LEAD OPTIM
Figure 14: Operational cost reductions during the year for the different control strategies
(monthly savings). The largest difference between the economic-optimization and heat-driven
strategy appears in summer.
3.5.3 Influence of the Storage Capacity

In order to study the impact of the thermal-storage capacity, on the overall system
performance, the RSC was varied continuously from 0 (i.e., no thermal-storage tank
installed) to 4. Figure 15 illustrates the cost savings with respect to the reference
scenario depending on the relative storage capacity.
It is clear and according to the expectations, that by installing a thermal-storage device

of 1 RSC significant cost savings can be achieved (e.g., the cost reduction increases
from 18 % without thermal-storage tank to almost 22 % in the optimization case).
It is also noteworthy that the effects of a further increase in the storage tank capacity
are almost negligible. In fact, a larger capacity of the thermal-storage tank leads to a
slight cost increase in the heat-driven operation.
These results are corroborated by other authors; Haeseldonckx, et al., [81] report that
the optimal thermal buffer should be able to store between two to three times the
thermal outputs generated during one hour by the CHP. For this reason, further in this
work, an RSC of 2 will be assumed unless a different value is specified.
25
Y early savings with respect to
20
reference [%]
15
10
0
0 1 2 3 4
RSC
HEAT DRIVEN ELECT DRIVEN OPT
Figure 15: Cost reduction of the different control strategies using different relative
thermal-storage capacities (RSC). The graph shows how introducing a heat buffer leads to
larger cost reduction, but without substantial further effect beyond RSC > 1.
3.5.4 Net Present Value

To finalize this chapter, the economic profitability of the studied cogeneration system
is assessed. Towards this aim, the net present value (NPV) is estimated for each of
the studied control strategies. The NPV is obtained using Equation (3-22):
-k R
V
Vo = −8 +
(3-22)
^1 + W3$C_-
-k8
In the equation, V equals to the sum of all the revenues and expenses during the
economic lifetime (LT) of the project. According to [86], the life time of a
micro-cogeneration project is about 15 years. The discount rate (W3$C) is fixed first to
6 % [87]. Afterwards, this parameter is varied to analyze its influence in the decision
process. Finally (8 ) is the initial investment cost, in this case 3500 € per kWe installed
capacity. The effect of this parameter is also analyzed in Section 3.5.4.1.
The results are summarized in Table 10. It is obvious that the largest NPV is attained
when the cogeneration device uses economic-optimization control. In contrast, a
negative NPV is obtained when the electric driven strategy is applied. Furthermore, the
discounted cash flow is depicted in Figure 16.
Table 10: Net present value for the different control strategies.
Heat-driven Electricity-driven Economic-Optimization

NPV [€] 29.21 -1628 1735
The figure shows that using the economic-optimization strategy a positive cash flow
can be obtained after 13 years of operation. The heat-driven strategy, on the other
hand, starts to receive positive income after the year 15. Whereas, the
electricity-driven obtains positive cash flow after 19 years.
10000
5000
0
NPV
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
-5000
-10000
-15000
Time [Years]
Figure 16: Discounted cash flow with the different control strategies. It can be seen that with
the electricity-driven strategy, the resulting cash flow is always negative during the project life
time (15 years). On the other hand, the heat-driven control obtains positive cash flow after 15
years, whereas in the economic-optimization case, it becomes positive after 13 years.
The following Sections 3.5.4.1 and 3.5.4.2 analyze the influence of several parameters
such as the rate of discount, the investment cost and the gas price.
3.5.4.1 Sensitivity on the Investment Cost
In the previous section, it was found that with the actual investment cost a very low
or even negative NPV results in the heat-driven and electricity-driven strategies.
Assuming that, in the coming years, the investment cost for the micro-CHP prime
movers will decrease due to economies of scale, the NPV can be recalculated
considering two different values for the investment cost 2500 and 3000 €/kWe installed
capacity instead of the reference value of 3500 €/kWe.
Additionally, when using the NPV in a decision process, it is important to select the
appropriated discount rate. The discount rate is usually associated with the opportunity
cost of capital for this project when compared to other potential investments. If the
project, for example, is compared to investing in bonds, the resulting rate of return is
low. Nevertheless, a private investor can reach larger internal rates of return and would
prefer to use them as reference for his chosen discount rate. For this reason, the NPV
was evaluated for three different discount rates (3 %, 6 % and 10 %).
Figure 17 depicts the results. The figure shows that, with the actual investment cost
of 3500 €/kWe and a high discount rate (10 %), the CHP project turns to be non-
profitable in all cases. If the discount rate is 10 %, the investment cost must decrease
at least by 15 %, for the resulting NPV to become positive. This might be a barrier for
the penetration of micro-CHPs in the residential sector.
Additionally, it is important to consider how the investment cost can substantially affect
the payback time. With a discount rate of 6% and a low investment cost (2500 €/kWe)
the payback time ranges from 8 years for the economic-optimization to 11 years for
the electricity-driven control. These values are lower than those reported in the
reference case (see Section 3.5.4). The lowest payback time is achieved with the
economic-optimization strategy when a discount rate of 3% and an investment cost of
2500 €/kWe are assumed. In this case, the payback time is only 7 years.
12000
8000
4000
NPV [€]
-4000
-8000
-12000
2500 3000 3500 2500 3000 3500 2500 3000 3500
Investment cost [€/kWeinstalled capacity ]
NPV6 NVP10 NPV3
Figure 17: NPV for the three studied control strategies using different discount rates and varying
investment cost. If the considered discount rate is 10 % the CHP project is non profitable with
the actual investment cost of 3500 €/kWe installed capacity.
3.5.4.2 Sensitivity on the Gas Prices
Finally, the influence of the gas price is analyzed and the results are presented in
Figure 18. Three different prices are considered (0.02, 0.04 and 0.06 €/kWh), recall
that the chosen “reference” price is 0.04 €/kWh. As in the previous section different
discount rates are evaluated. It is clear that the gas price has a large influence on the
profitability of the project. If the gas price increases to 0.06 €/kWh, the NPV turns
negative for all cases independent of the discount rate considered. In a similar way, if
the gas price is as low as 0.02 €/kWh the project is always profitable independent of
the discount rate.
16000
12000
8000
4000
NPV [€]
0
-4000
-8000
-12000
-16000
0.02 0.04 0.06 0.02 0.04 0.06 0.02 0.04 0.06
HEAT DRIVEN ELECT DRIVEN OPTIMIZATION
Gas price [€/kWh]
NPV3 NPV6 NVP10
Figure 18: NPV for the three studied control strategies using different discount rates and changing
the gas price.
Furthermore, the gas price also influences the payback time considerably. Considering
a discount rate of 6% and a low gas price (0.02 €/kWh), the payback time ranges from
8 and 10 years for the economic and electricity-driven control, respectively. On the
other hand, the payback time increases to 28 years in the best case
(economic-optimization) when the gas price is as large as 0.06 €/kWh.
In the following chapter, it is assumed that a VPP pays the same gas price as the small
and medium sized enterprises (i.e., 0.04 €/kWh). However, currently there is no
agreement regarding the gas price that will be paid by residential micro-CHPs
aggregated in VPP. Clearly this can affect the results substantially and increases the
uncertainty regarding the profitability of micro-CHPs.
3.6 Conclusions
Traditionally, a CHP device was operated to follow the heat demand known as
heat-driven strategy. This operation was motivated by the fact that most prime movers
(except for fuel cells) have low electric efficiency. As a consequence, using the CHP to
generate electricity at moments when the heat cannot be used results in a non efficient
use of primary energy.
Nevertheless, the use of thermal-storage tanks opens the possibility to use other
strategies such as: electricity-driven and economic optimization. When comparing the
three strategies, the results indicate that for the studied CHP system the
economic-optimization control performs better than the heat-driven and the electricity
driven control.
Assessing the heat-driven and economic-optimization algorithms, it is observed that,

during the winter, the behavior of these strategies is very similar. However, in the
intermediate season and summer, when the heat demand is low, the optimization
algorithm obtains an economic advantage. This is because during these seasons,
instead of using the CHP in part load to follow the heat demand closely (as the
heat-driven strategy does), the economic-optimization strategy operates the CHP at
maximum capacity whenever possible, filling the thermal buffer to meet later the heat
demand.
Furthermore, the results indicate that during summer, when the electric demand
becomes more important than the heat demand, it is more profitable to use an
electricity-driven control.
The results of this chapter motivate the use of economic optimization. It was shown
that with this operation strategy a larger NPV can be obtained. The following chapters
use the explained optimization algorithm of this Chapter 3 as basis for building up their
respective models.
4. Self-Balancing Using Virtual Power
Plants
The content of this chapter is adapted from:

J. Zapata, J. Vandewalle, and W. D’haeseleer, “A comparative study of imbalance
reduction strategies for virtual power plant operation,” In: Applied Thermal
Engineering (2014), pp. 847-857.
4.1 Introduction
The large penetration of distributed generation (DG) in the electric grid yields an
important challenge to the operation of the energy system. Several DG technologies
have an intermittent output that is very difficult to forecast (i.e., wind and solar). This
increases the imbalance error of the system. To balance the total generation and
consumption of power in real time reserve, power is used. Nevertheless, increasing
the use of reserve power adds a significant cost factor for operating the grid. In order
to counterbalance this problem, it is proposed to group different distributed generation
technologies into a virtual power plant.
This chapter aims to answer the first research question of this thesis, namely: “What
is the potential to use a VPP comprising micro-CHP technologies to help reducing the
imbalance error due to the imperfect forecast?”
The most important contributions of this chapter can be summarized as:
1. The ability of residential micro-CHP devices to reduce imbalances due to forecast

errors of RES is assessed by applying a rolling horizon optimization to a VPP.
2. A comparison between different imbalance reduction strategies is performed in

terms of reducing imbalance-error and the achieved economic benefits.
The remaining of this chapter is organized as follows: Section 4.2 provides a general
description of the studied case. Section 4.3 outlines the optimization algorithm; this
algorithm is divided in two main parts, the day-ahead optimization explained in 4.3.1
and the actual day optimization. Two strategies were used for the actual day
53
54 Self-Balancing Using Virtual Power Plants
optimization, a ‘forced self-balance’ strategy described in 4.3.2 and an ‘economic

self-balance’ strategy illustrated in 4.3.3. The most important assumptions regarding
the CHP system and the prices are given in Section 4.4. Section 4.5 briefly describes
the forecasting techniques used. The results are presented in Section 4.6. Finally,
Section 4.7 summarizes the work and states the conclusions.
4.2 Problem Description

The present study evaluates the ability of residential micro-CHPs to reduce the
imbalance of small decentralized PV installations. Real residential gas and electric
demand profiles have been made available by the LINEAR project16 . These data have
been collected during measurements performed on 57 houses and it represents a
characteristic sample of the Flanders region with respect to annual electric and thermal
consumption, dwelling type and number of inhabitants.
In order to obtain a realistic heat demand profile based on the gas-demand profile, it
is assumed that both variables are proportional. This assumption is justified by the fact
that 83 % of the residential gas demand in Flanders is used for space heating. Hence,
the conversion factor is equivalent to the boiler efficiency [88].
In this case study, only the houses where annual heat demand is larger than
20,000 kWh are taken into account. According to [89], considerable benefits when
using micro-CHP instead of traditional heating systems (i.e., condensing boilers) can
only be obtained in households with large heat demand. Only three of the available
profiles fulfill this condition.
Therefore, the considered VPP consists of three detached dwellings and a PV facility.
Each dwelling has a micro-CHP system (CHP prime mover, boiler and thermal-storage
tank) installed. The CHP system is similar to the one illustrated in the previous chapter
(see Figure 8). The prime mover is an internal combustion engine. This kind of
technology was selected since it represents the largest number of CHPs that are
installed in Belgium at the moment [90]. The small solar power station has a maximum
output of up to 32 kW.
16
http://www.linear-smartgrid.be/
Problem Description 55
There is no heat-grid connection between the houses. In contrast, the electricity

generated by micro-CHP can be used either to meet the common electric demand or
can be sold in the exchange market. As the main goal of this study is to evaluate the
ability of residential micro-CHPs to compensate the forecast error of a PV installation,
all other influences are neglected. For that reason, it is assumed that the solar power
station is not connected to the houses and the PV output will always be sold into the
DA market.
Figure 19 illustrates the case study. It is assumed that the VPP operator will bid a
certain amount of electricity into the DA market. The day-ahead bid, consists of the
expected PV generation plus the electric energy generated by the CHP that was not
used for internal consumption. During the actual day, if the VPP fails to deliver the
contracted electric energy due to forecast errors, the difference is settled in the
balancing market. For this reason, during every time step, the CHP generation is
rescheduled in order to reduce the imbalance.
Figure 19: The studied case consists of a VPP that aggregates a group of residential micro-CHPs
with a photovoltaic installation. The micro-CHPs output are rescheduled every time step in order
to reduce the imbalance due to forecast errors of PV generation.
The analysis is performed for three representative weeks for three different seasons
(summer, intermediate and winter). The imbalance reduction and the economic
advantages are compared among the different seasons and scenarios.
Since the study evaluates the reduction of imbalance errors caused by the forecast
deviation of PV output, other error sources such as deviations of heat demand and
electricity price forecast are not considered.
4.3 Optimization Algorithm

The optimization uses a MILP model that is solved by the optimization software CPLEX.
It is performed at two different points in time: the day previous to the delivery and in
the actual day. The first optimization (DA optimization), has the objective to find an
operational schedule for the CHP and boiler that minimizes the energy cost of the
households. The results of this optimization are the base for the self-balance strategies
as shown in Figure 20.
Figure 20: Two step optimization. On the Day-ahead (D-1), the optimization decides the optimal
schedule of the CHPs. During the actual day (D), a self-balance routine is performed to re-
schedule the CHPs aiming to reduce the imbalance error.
In the DA optimization, a large part of the electricity generated by the CHP is used to
meet the local demand; this is due to the fact that the day-ahead prices are most of
the time not high enough to motivate the use of the CHP for selling electricity to the
grid. Nevertheless, the system allows to feed excess electricity into the grid and thus
this part of the optimization also estimates the amount of electricity generated by the
CHP that is going to be sold in the DA-market.
Optimization Algorithm 57
Near real time balancing optimization is performed during the actual day using a
rolling-horizon approach as illustrated in Figure 21. This technique is also known as
Model Predictive Control (MPC). At each time step, the actual PV output is obtained
and the imbalance errors estimated. The optimization is performed for the entire time
horizon, in the actual case for 24 hours which are split in 15 minutes time steps, using
a forecast of the future PV generation; yet only the first time slot is implemented. The
procedure is repeated during the next periods.
Figure 21: Rolling-horizon optimization: Every time step the optimization is performed for the
whole time horizon; however, only the first time step is implemented.
Two different approaches are evaluated for the self-balancing strategy. First, a ‘forced
strategy’ reduces the imbalance error regardless of the price. This strategy gives the
maximum theoretical possible imbalance reduction under the optimization conditions.
A second approach or ‘economic strategy’ intends to minimize the total operational
cost including the imbalance cost. These strategies are compared against a ‘reference
scenario’ in which no self-balancing is performed; thus the forecast deviations are
settled in the imbalance market.
Furthermore, the ‘economic strategy’ is evaluated considering both perfect prediction

of the imbalance prices and a forecast that is performed using autoregressive models
(ARIMA) as explained in Section 4.5.2. In summary, four scenarios are studied, namely
a ‘reference scenario’ (REF), a ‘forced self-balancing’ (FS) and an ‘economic
self-balancing’ with perfect prediction (ES-P) and with forecast (ES-F). The
characteristics of these scenarios are summarized in Table 11.
Table 11: Summary of the four studied scenarios.

Scenario Reference Forced Economic Self-Balance
Self-Balance Perfect Forecast
Reschedule No reschedule Minimize Minimize cost Minimize cost
objective imbalance including including
volume imbalance imbalance
penalty penalty
Imbalance price No information No information Actual Forecasted
information imbalance price imbalance price
4.3.1 Day-Ahead Optimization Algorithm

The objective of the day-ahead optimization algorithm to minimize the operational cost
of the system is expressed in Equation (4-1):
R
UZ[ = ^- + -

− -# − "-# _
(4-1)
-k
The operational cost is equal to the sum of the fuel cost of the CHPs and the
boilers - , - plus the cost of the electricity that has to be bought from the
grid to meet the remaining electricity demand -# minus the revenues due to the
electricity that is sold to the grid "-
+(
.
The constraints that limit the operation of the CHP units and boilers are explained in
The electricity generated by the VPP, - , is equal to the sum of the individual
Section 3.3 (see Equations (3-6) to (3-19)), they apply to each individual CHP unit.
electricity generated by each CHP device:
- = F,-
(4-2)
F
In addition, the minimal up and down times of the CHPs are taken into account. For
each individual CHP unit, new sets and z are created:
= [1,2, … , X%F ] (4-3)
z = [1,2, … , E%F ] (4-4)

In these equations, X%F and E%F represent, respectively, the minimal up-time and
minimal down-time of each CHP unit, being one hour in this particular case. The
constraints on the minimal up and down time become:
F,- − F,- − F,- ≤ 0 (4-5)
F,- − F,- − F,-) ≤ 1 (4-6)
4.3.2 Actual Day Optimization - ‘Forced Self-Balancing’

The objective function of the second optimization problem is to minimize the imbalance
volume. As stated in Equation (4-7):
R
UZ[ = -0 R20 − -1 0R

(4-7)
-k
where -0 R20 is the actual electric output of the PV and CHP installation and
-1 0R is the forecasted output of these variables. This optimization is performed
every time step once the real PV output is obtained. Although the objective function is
different, the optimization has the same constraints previously explained and described
in Equations (3-6) to (3-19).
An additional equation is included to estimate the imbalance error:
∆- = - GHIJK + - GHIJK − d- JIKQJN + - JIKQJN h

; ; (4-8)
In this equation, ∆- is the imbalance error, which is estimated by subtracting from
the scheduled PV, - GHIJK , and CHP electric power generation, - GHIJK , the
;
actual output of these variables - JIKQJN and - JIKQJN .

;
4.3.3 Actual Day Optimization - ‘Economic Self-Balancing’

The objective function is expressed in Equation (4-9):
R
UZ[ = ^- + - _

(4-9)
-k
The aim is to reduce the total operational cost - , including the imbalance cost - .
Thus, the VPP can decide every time step whether it is profitable to reduce its
imbalance internally or whether it is better to settle the difference in the imbalance
market.
The fee that the VPP has to pay for the imbalance depends on its own positions (i.e.,
if it is generating more or less than the forecasted output) and on the imbalance prices
as shown in Equation (4-10):
- = ∆- ∙ / - − ∆- ∙ / - ∙ ∆$

(4-10)
Where ∆- and ∆- are, respectively, positive and negative imbalances of

the VPP and the corresponding positive and negative imbalance tariffs are / - and

/ - . It is important to remind that if the VPP has a positive imbalance, the
additional energy generated is sold to the TSO (Transmission System Operator) - see
Section 2.2.2 - and the VPP receives compensation (except in case of negative prices).
Therefore, the positive imbalance cost has a negative sign in Equation (4-10).
An additional constraint has been added to avoid that the VPP takes advantageous
positions in the market that could be penalized by the TSO (see Equation (4-11)):
∆- ≤ ∆-

(4-11)
imbalance caused by the PV installation, ∆- , due to prediction errors.

This equation requires the total imbalance of the VPP to be lower or equal than the

4.4 Assumptions
4.4.1 Cogeneration System

The cogeneration system consists of a prime mover, a thermal buffer and an auxiliary
boiler similar to the ones used in Section 3.4 and illustrated in Figure 8. The prime
mover was sized for each house using the ‘maximum-rectangle’ method as explained
in Section 3.4.1.
The capacity of the thermal-storage tank is calculated in such a way that the thermal
buffer is able to store two hours of the maximum thermal output generated by the
CHP (see Section 3.4.3). It is assumed that the thermal-storage tank starts and ends
empty. The optimization does not allow dumping heat in the environment.
Finally, the auxiliary boiler covers the remaining heat demand. The boiler efficiency is
assumed to be constant and equal to 90 %.
Forecasting 61
4.4.2 Electricity and Gas Prices

For the present work it is assumed that the price for the local electric energy
corresponds to a typical residential tariff which amounts to 0.15 €/kWh at night and
0.22 €/kWh during the day. With regard to the DA price, the values are obtained from
the BELPEX17 internet platform and correspond to the year 2012. It is also assumed
that the VPP will pay a gas price equal to the price that is paid by small and medium
sized enterprises which in the case of Belgium is equivalent to 0.04 €/kWh18.
The imbalance prices are publicly available at the internet page of ELIA19. The working
mechanisms of the Belgian balancing market have been explained in Section 2.2.2.
4.5 Forecasting
4.5.1 Forecasted and Measured Photovoltaic Data

The PV profile used was measured at a fixed rooftop PV installation at the KU Leuven
Campus in Belgium. The data is available in fifteen minutes time steps [91]. The
historical power generation of the modules was used to obtain a simulated forecast.
This was done making use of autoregressive models as explained by Bacher, et al.,
[92] and Pedro and Coimbra [93].
First, the PV data was normalized using the methodology described by Bacher, et al.,
[92]. This kind of model assumes that the PV output can be explained by a combination
of deterministic and stochastic factors. The method employs measurement from
previous years to determine the base output of the PV.
year is arranged as a function of the time of the day (i.e., as a fraction of the day
The methodology is further illustrated in Figure 22. First the PV output of the previous
being 1 the end and 0 the beginning) and day of the year (see panel a). Afterwards,
using quantile regression, a smooth surface that covers the measured PV output
closely is found. This is shown in the right panel. As in [93], no mathematical
expression is derived from the surface, only interpolation is employed in order to find
the base model.
17
BELPEX is the Belgian Power Exchange for anonymous, cleared trading in day-ahead electricity.
18
Since the structure of the market for a VPP is not yet clearly established the model employs
both retail and wholesale market prices. In the future, the regulator should clarify the rules for
the market.
19
ELIA is the Belgian transmission system operator (TSO) for electricity.
30 30
Power output [kW]
Pow er output [k W ]
20 20
10 10
0 0
1 1
400 400
0.5 0.5
200 200
τd 0 0 τy τd 0 0 τy
a) b)
Figure 22: PV base model. The left panel shows the PV output as a function of the time of the
day and the day of the year. The right panel presents a model of the PV output under base
conditions.
Once the PV output is normalized, the deviation from the base model is estimated
making use of an autoregressive moving average technique (ARIMA). Details on how
to fit an ARIMA model can be found in Appendix A. The resulting model that best fits
to the normalized PV output is a seasonal ARIMA (0,1,2) (0,1,0)96. The seasonality
corresponds to a daily correlation. Recall that the data is in 15 minute time steps and
thus the total number of time steps per day is 96.
4.5.2 Imbalance Price Forecast

In the ‘economic self-balancing’ with forecast20, the objective is to minimize the total
cost. For this reason, a prognosis of the imbalance prices should be incorporated in
20 The ‘economic self-balancing’ with perfect prediction makes use of the actual imbalance prices
serving as best case scenario.

the optimization. In [94], it is suggested that there is a linear relationship between the
day-ahead market price, the imbalance price and the net regulating volume (NRV)21.
The imbalance price is formulated as a linear combination of the NRV and the
day-ahead market price. A linear fit is expressed in Equations (4-12) and (4-13) for
the values of the year 2012. Note that both equations are very similar. This is due to
the fact that, as mentioned before, in Belgium there is a single imbalance price for
positive and negative regulation that only differs by α and β in case of large imbalance
(see Section 2.2.2).

/ - = /-0 + 0.19 ∗ V" + 13.7 [c€/kWh] (4-12)

/ - = /-0 + 0.18 ∗ V" + 15.5 [c€/kWh] (4-13)
Using a linear fit proves to be a sufficiently accurate measure for the purpose of this
research since the aim of the study is to establish the methodological and conceptual
principles. Nevertheless, as explained before, the algorithm was performed with and
without perfect forecast in order to have an idea of the value of a perfect prediction.
It is assumed that the day-ahead market prices are known in advance. Thus, only a
forecast of the NRV is needed in order to predict the positive and negative regulating
prices.
Forecasting the NRV is a challenging task due to its unpredictable nature. Nevertheless,
a good approximation can be found using autoregressive models as explained in [90].
Once the NRV forecast is obtained, the values are fitted to Equations (4-12) and (4-13)
and the positive and negative imbalance prices are estimated.

The results of the three different implemented strategies are compared. The first
criterion to be evaluated is the ability to decrease the imbalance error, or in other
words, the capacity to comply with the original day-ahead schedule. The second
criterion is the total operational cost including the fuel cost and the imbalance cost.
Since the DA revenues are the same for all scenarios (only differing between seasons)
they are not included in the comparison.
21
This is the reserve power that Elia had to activate in the specified 15 minutes to preserve the
balance in the system.
4.6.1 Day-Ahead Schedule Compliance

Figure 23 illustrates the results of the DA schedule compliance on a typical winter
day22.The left side of the figure depicts the ‘reference scenario’, whereas the plot in
the middle corresponds to the ‘forced self-balance’ strategy and the right figure
represents the ‘economic self-balance’ approach using perfect prediction.23
In the figures, the black line indicates the amount of electric power that was bid into
the DA market while the shaded area represents the actual electricity that was
delivered. Looking at the figures, it is clear that using rescheduling to self-balance,
either by aiming to reduce the imbalance error or the total cost, the difference between
the electricity bid DA and the actual dispatch can be largely reduced.
20
16
Electricity [kWh/h]
12
RT DISP
8
DA BID
0
0:00
10:30
21:00
0:00
10:30
21:00
0:00
10:30
21:00
Reference Forced Self-Balance

Economic Self-Balance
'Perfect Prediction'
Figure 23: Reference and self-balancing scenarios on a winter day. In the self-balancing
scenarios the actual delivered electricity (shaded areas) follows closely the DA bid (black
line)24.
22
The calculations were performed for a week, the figures show only one day to facilitate the
visualization.
23
The results of the economic rescheduling with forecasted prices look very similar to those with
perfect prediction and therefore are not shown.
24
In the figures RT DISP stands for real time dispatch.
Similarly, Figure 24 illustrates the studied scenarios on a summer day. In this case,
only the ‘forced self-balance’ approach decreases the difference between the actual
output and the DA bid. On the other hand, the ‘economic self-balance’ strategy
performs poorly in reducing the DA schedule deviations, suggesting that it is not
profitable to do so during this day. This observation is elaborated further in the Section
4.6.2.
20
16
Electricity [kWh/h]
12
RT DISP
8
DA BID
4
0
0:00
10:30
21:00
0:00
10:30
21:00
10:30
21:00
0:00
Reference Forced Self-Balance

Economic Self-Balance
'Perfect Prediction'
Figure 24: Reference and self-balancing scenarios on a summer day. Same convention as in
Figure 23.
In a further step, the compliance with the DA schedule (i.e., imbalance error reduction)
is calculated with respect to the ‘reference scenario’. Table 12 summarizes the results.
The first column shows the remaining imbalance in the reference case. Afterwards, the
corresponding positive and negative imbalance errors resulting from the self-balancing
strategies are presented.
It can be observed that the remaining imbalance error (particularly the positive
imbalance) in spring and summer is larger than in winter. The results of the ‘forced
self-balance’ strategy indicate that it is theoretically possible to achieve a large
compliance with the DA schedule using micro-CHP (up to 95 % in winter).
Regarding the ‘economic self-balancing’ strategies, both with and without perfect price
forecast, the results show that the amount of imbalance error reduction is lower in
comparison with the ‘forced self-balance’ strategy. For instance, during winter, the
‘forced self-balance’ strategy was able to decrease the negative imbalance volume by
95 %. However, the ‘economic self-balancing’ only reduces 22 % of this imbalance
volume. These numbers suggest that in some cases instead of using the CHP to reduce
the imbalance, it is better to settle the difference in the market. Particularly in summer,
for example, there is a minor effort to reduce negative imbalance (only 2.7 % lower
than the reference case). This is due to the fact that the low heat demand lowers the
motivation to turn on the CHP in order to compensate for insufficient electricity
generation.
Table 12: Remaining imbalance for the different scenarios [kWh].
Season Reference Forced Economic Self-Balance

Self-Balance
Perfect Forecast
POS NEG POS NEG POS NEG POS NEG
Winter 69.3 105.4 15.6 5.0 32.2 73.7 19.2 81.0

Spring 267.8 206.5 139.7 100.2 205.0 144.4 206.5 150.9
Summer 300.1 137.4 163.4 56.8 190.0 133.7 180.6 133.6
POS =Positive imbalance; NEG=Negative imbalance
4.6.2 Total Operational Cost

Next, the total operational cost is subject to evaluation. This cost includes the fuel cost
of the CHP, the auxiliary boiler and the imbalance cost. The results are illustrated in
Figure 24, Figure 25 and summarized in Table 13.
In Figure 24 the cost difference between the reference and the ‘forced self-balancing’
scenario is illustrated. The three cost components are included (fuel cost for the boiler
and CHP and the imbalance cost). In the graph, a positive amount indicates an increase
of the cost and a negative amount a decrease.
During winter, the CHP is forced to generate more electric energy in order to
compensate the forecast error of the PV installation. As a consequence, the cost of the
CHP increases. This leads to a decrease in the cost of the boiler since the CHP is
simultaneously generating more heat. This is possible and still profitable in this season
due to the large heat demand.
Summer
Total
Spring
Imbalance
CHP
Boiler
Winter
-20 -15 -10 -5 0 5 10 15 20

Cost reduction/increase with respect to reference [€/week]
Figure 24: Cost change for the ‘forced self-balance’ strategy with respect to the ‘reference
scenario’. A positive change denotes a cost increase while a negative change is a decrease.
Summer
Total
Spring Imbalance
CHP
Boiler
Winter
-20 -15 -10 -5 0 5 10 15

Cost reduction/increase with respect to rererence [€/week]
Figure 25: Cost change for the ‘economic self-balance’ strategy with respect to the ‘reference
scenario.’ A positive change denotes a cost increase while a negative change is a decrease.
On the other hand, during summer and spring, there is a large positive imbalance (see
Table 12). Thus, the CHP is forced to reduce the electric output in order to compensate
for the excess of PV energy. Opposite to what was expected, this leads to an increase
in the imbalance cost during both seasons. This is because as explained in Section
2.2.2, the TSO pays to the BRP for positive imbalance errors (i.e., generation surplus).
If the price paid by the TSO is large, reducing the positive imbalance error will decrease
profits (see Figure 26 for an insight into this case). According to Figure 24, the ‘forced
self-balancing’ strategy is only profitable during winter (see also Table 13).
Similarly, Figure 25 illustrates the cost difference between the ‘economic

self-balancing’ strategy with perfect prediction of the prices and the ‘reference
scenario’. In this case there is a total cost reduction in all seasons (see also Table 13).
Particularly, it can be observed that the CHP is used less to compensate negative
imbalance during winter, leading to a larger cost reduction than the observed with the
’forced strategy’. On the other hand, during summer CHP generation decreases
considerably due to two reasons: first the lack of PV generation is mostly settled in the
imbalance market and consequently increasing the imbalance cost, which is more
convenient than using the CHP in this season due to the extra fuel cost. Second, the
CHP is turned off at some times to compensate the extra PV generation, leading to
savings in the primary energy cost. These results are also supported by the findings of
the previous section (see Table 12).
Table 13: Difference in the operational cost with respect to the ‘reference scenario’.
Difference Winter Summer Spring
[€/week]
FS ES-P ES-F FS ES-P ES-F FS ES-P ES-F
Boiler -9.27 -2.28 0.29 6.75 9.52 10.42 2.35 -1.25 -0.77
CHP 9.50 -1.42 -3.94 -5.74 -16.46 -17.00 -0.45 0.90 0.01
Imbalance -1.42 -0.44 0.07 2.18 3.02 3.58 1.12 -2.34 -1.12
Total -1.18 -4.15 -3.57 3.20 -3.92 -3.01 3.02 -2.69 -1.87
FS= Forced strategy; ES-P=Economic strategy perfect prognoses; ES-F =Economic strategy
with forecast
Table 14 summarizes the total cost per week for the three studied strategies (and the
cases with and without perfect prediction) and the percentage change of the cost with
respect to the ‘reference scenario’. The first column corresponds to the ‘reference
scenario’ where the imbalance error is settled in the market. Afterwards, the results of
the ‘forced self-balancing strategy’ and the ‘economic self-balancing’ are shown. A
negative percentage value indicates a cost decrease.
The main findings of Table 14 are summarized as follows:
• The cost increase that occurs in summer and spring with the forced schedule
reflects that, even though it is theoretically possible to use micro-CHP devices
to reduce imbalance, it is not always profitable to do so.
• The perfect prediction gives always the maximum theoretical cost savings
that can be achieved by implementing the ‘economic self-balancing’
methodology. Nevertheless, the difference between the forecasted and the
perfect prediction is not large. In summer, for example, the cost of the
‘economic strategy’ using perfect prediction is only 1.5 % lower than the cost
when using a forecast (the difference in other seasons is of the same
magnitude). This indicates that in this case improving the quality of the
forecast does not lead to a significant increase of the profits.
Table 14: Cost of the different strategies and change with respect to the ‘reference scenario’ (A
negative change indicates a cost decrease).
Reference Forced Economic Self-Balancing

Self-Balancing Perfect Forecast
Cost Cost Change Cost Change Cost Change
(€/week) (€/week) (%) (€/week) (%) (€/week) (%)
Winter 406.7 405.5 -0.3 402.5 -1.0 403.1 -0.9

Summer 93.2 96.4 +3.4 89.3 -4.2 90.2 -3.2
Spring 136.6 139.6 +2.2 133.9 -1.2 134.7 -1.4
Total 636.5 641.5 +0.8 625.7 -1.7 628.1 -1.3

Furthermore, observing the results of Table 13 and Table 14 it is important to highlight

that the actual cost difference between the reference case and the studied strategies
is very small. This can result from the fact that the VPP aggregator consists of CHPS
with an ICE. This kind of technology has a low electric efficiency and a large heat to
power ratio. For that reason, the imbalance cost reduction does not compensate the
increase of fuel cost of the CHP. Similar results are found in [59] and [95]. In [95] it
is stated that the benefits provided by micro-CHP technologies largely depend on the
heat-to-power ratio and the load patterns. Thus the self-balancing strategies might be
evaluated in other kinds of buildings (e.g., service buildings) and with other kinds of
CHP technologies (e.g., fuel cells). Nonetheless, this is out of the scope of this work.
Finally, Figure 26 explains one of the reasons of the poor economic performance of
the ‘forced self-balancing’ technique. Figure 26 shows the remaining positive imbalance
for the different strategies on a spring day. The upper panel illustrates also the actual
imbalance price (black) and the imbalance price forecast (gray). The second and third
panel corresponds to the ‘economic strategy’ with and without perfect prediction
respectively (black and dotted lines) and the panel at the bottom illustrates the ‘forced
strategy’ (dashed line). The shaded gray area in all plots correspond to the reference
scenario where no self-balancing is applied.
Looking at the ‘forced self-balance’ strategy (dashed line) the remaining imbalance is
much lower than in the ‘reference case’ (gray area), whereas in the other cases there
is almost no change of the imbalance error. This is due to the fact that, as shown in
the upper panel, the positive imbalance prices during this period are large (up to
27c€/kWh). The large prices reflect the need of the TSO for up regulation, thus the
TSO will pay to the VPP for its extra energy. As the ‘forced self-balance’ strategy does
not take the prices into account, it reduces the imbalance by decreasing the CHP
operation, but therefore it loses the opportunity to make profit.
On the other hand, though the forecast is not able to follow the peaks of the imbalance
prices, the behavior of the ‘economic self-balance’ strategy with and without perfect
prediction is nearly the same. This can be explained using the concept of the profitable
price that is elaborated in [96]. According to this concept in an economic optimization
the CHP operates only if the price paid for the electricity is larger than the cost of
producing electricity with the CHP this cost is defined in Equation (4-14):
12 !
= ¤ ∙ / − . / 12 ¦ ∙ Δ$
(4-14)
∝ &' ()*+
In this equation corresponds to the cost of producing electricity with the CHP,
assuming that the heat produced has equal cost as the heat produced in a boiler.
Figure 26: Remaining imbalance for the different scenarios: ‘forced self-balance’ (FS) and
‘economic self-balance’ with perfect prediction and with forecast (ES-P and ES-F). The first
panel shows the actual imbalance price and forecast. The shaded areas in the three lower
panels correspond to the remaining imbalance of the reference case. The FS strategy (dashed
line) reduces the positive imbalance even when the imbalance tariffs are large. ¨o
stands
for the cost for producing the electricity with the CHP.
This cost represents a threshold: once the electricity price is larger than this
threshold (no matter how large) the CHP operation is considered profitable.
Consequently, the forecast does not have to predict the actual values but should
be good enough to predict whether the imbalance prices are larger than the
profitable cost to operate the CHP.
An example is shown in Figure 26 around the hour 16:00. The forecast fails to
predict that the imbalance price will be larger than the profitable cost (dashed line
first panel)25 and thus the ‘economic self-balance’ strategy with forecast decides to
decrease the CHP operation and meet the heat demand with the help of the boiler.
During the rest of the time the forecast is good enough and the operation with and
without forecast is the same.

In this chapter, an optimization algorithm was designed to operate a virtual power
plant that consists of several micro-CHP systems and a PV installation. The optimization
algorithm uses a mixed integer linear programming model that fixes the amount of
electricity that is going to be produced by the CHP the day before. During the actual
day, a rolling horizon approach reschedules the operation of the CHP in order to
compensate the imbalance error.
Three different strategies are compared: The first or ‘reference scenario’, does not
make use of any rescheduling strategy but settles the imbalance error in the market.
The second one, or ‘forced self-balancing’ strategy, forces to reduce the imbalance
error without taking into account the imbalance tariffs. The ‘forced self-balancing’
strategy gives an idea of the maximum reduction that is theoretically possible. The last
approach, ‘economic strategy’, aims to decrease the total cost (including the imbalance
cost). This last strategy was implemented with and without perfect prognosis.
The results show that using the rescheduling strategy (either to reduce imbalance or
cost), the deviation between the scheduled electricity and the actual delivery can be
substantially reduced (up to 95 % in winter with the ‘forced strategy’ approach).
25
The operational cost changes with the electrical efficiency the one estimated for the example
was calculated assuming the maximum electrical efficiency.
However, this imbalance error reduction comes at a cost. This cost increase has to be
weighed against the cost of settling the deviations in the balancing market. If the
balancing tariffs are not taken into account, there is a risk of facing profit losses.
The results of this chapter show that the economic advantages of using micro-CHP to
balance a PV installation are limited. In the best case, assuming perfect forecast of
prices and generation, the savings are lower than 2 %. These low numbers seem not
to be enough to motivate a VPP operator to implement a self-balance technique. The
reasons behind these numbers are the low electric efficiency (24.8 %) of the studied
CHP technology. As a consequence, imbalance cost reduction does not compensate
the extra primary energy cost.
Similar conclusions are reported by other authors in the literature. Zdrilic, et al., [97]
have studied a VPP that consists of a wind farm, a solar installation and a conventional
gas turbine. It was found that it is better to cover the forecast deviations buying the
electricity from the day-ahead market than using the gas turbine. D’hulst, et al., [98]
have assessed the possibility to balance a large-scale PV installation making use of an
industrial CHP unit; the results predict a possible imbalance volume reduction of more
than 80%. Houwing, et al., [58] have demonstrated that micro-CHPs can help to
reduce the imbalance error of wind generators by 73%. The simulations of Houwing,
et al., [58] are limited to one month in winter. As a consequence, the seasonal effects
are not evaluated.
In this chapter, the remaining imbalance error is not allowed to be larger than the PV
forecast error (see Equation (4-11)). This constraint implies that the CHPs can deviate
from their planned schedule only to compensate for the PV forecast errors. This
assumption limits the opportunities to provide passive balancing using the micro-CHPs.
The potential of providing passive balancing is extensively analyzed in the next chapter.
5. Passive Balancing Using Micro-CHPs

Zapata Riveros, J., Donceel, R., Van Engeland, J. & D’haeseleer, W. “A new approach
for near real-time micro-CHP management in the context of power system imbalances
– A case study”. In: Energy Conversion and Management 89, (2015), pp. 270–280
5.1 Introduction
The present study aims to develop a methodology to assess the feasibility of providing
balancing services making use of an aggregation of 13 micro-CHP devices. The day
before, the aggregator nominates his energy in the day-ahead market, during the
actual day the pool offers balancing services by exploiting his flexibility.
The first approach for offering flexibility on near real time is the ‘self-balancing’ studied
in the previous chapter. This chapter does not aim to reduce the local imbalance due
to forecast errors or to actively participate in the reserve power market. The studied
portfolio consists exclusively of micro-CHP devices. The objective is to offer near real
time passive balancing services to the system operator using the flexibility of the
aggregator.
Passive balancing occurs when a BRP participates in the balance of the electric power
system even when it is not actively selected in the merit-order mechanism. In other
words, when the internal imbalance of the BRP has the opposite direction of the total
system imbalance. The Belgian market design, not only allows but also incentivizes
this mechanism as a key point to minimize residual imbalance [25].
The major contribution of this chapter is to develop a near real time balance
optimization that enables a CHP aggregator to find the optimal operation strategy that
at the same time maximizes his revenues and contributes to resolve the system
imbalance using the ability of the aggregator to change the scheduled electric output
of the CHPs at the time of delivery.
Additionally, the effectiveness of the methodology is tested in a hypothetical case study

that resembles the actual situation of the Belgian energy markets and CHP
installations. This includes an assessment of the influences of several parameters on
75
76 Passive Balancing Using Micro-CHPs
the optimization such as the gas price, the boiler efficiency and governmental support
of CHP given by the Flemish government by means of CHP certificates.
The remainder of this chapter is organized as follows: Section 5.2 explains in detail the
methodology developed. The optimization algorithm is presented in Section 5.3. The
assumptions related to the case study are described in Section 5.4. The most important
results are discussed in Section 5.5. Section 0 presents a sensitivity assessment.
Finally, Section 5.7 summarizes the conclusions and gives suggestions for future work.
5.2 Methodology
The strategy developed in this work enables an aggregator to find the optimal
nomination and dispatch of the devices in order to participate in the wholesale energy
market. The aggregator is composed of a group of micro-CHPs that are equipped with
auxiliary back-up boilers and thermal-storage tanks. The configuration for each
member of the aggregator is shown in Figure 27. The heat demand of the building is
met using either the CHP, the back-up boiler or the heat stored in the thermal-storage
buffer. On the other hand, the electricity generated by the CHP is aggregated and sold
in the electricity market. Self-consumption of electricity is not considered in this
chapter.
Figure 27: Configuration of the cogeneration system for each member of the aggregator. The
thermal load is always met using either the CHP or the back-up boiler. The electricity generated
is aggregated and sold in the exchange power market.
The objective of the optimization is not only to maximize the revenues from selling the
electrical energy in the day-ahead market, but also to increase the profits by using the
Methodology 77
flexibility of the aggregator during the actual day of delivery. In other words, the goal
is to find the optimal dispatch of the CHP devices that at the same time reduces the
imbalance of the system and gives economic benefits to the aggregator. To reach this
aim, two optimizations are performed at different time periods. Figure 28 illustrates
the optimization process.
Figure 28: Two step optimization: In the previous day, the day-ahead optimization decides the
optimal schedule of the CHPs. In the actual day, once the actual NRV is obtained, the real time
optimization reschedules the CHPs in order to reduce the system imbalance.
The first optimization is performed the day before the actual delivery (day-ahead (DA)
optimization). This optimization uses information regarding day-ahead prices and heat
demand in order to find the optimal volume that should be bid in the day-ahead
market. Both the thermal demand and day-ahead prices are assumed to be perfectly
predictable as the focus of this work is on the real time optimization.
The day-ahead bids serve as inputs for the near real time balancing optimization. This
optimization aims to reschedule the operation of the aggregator in order to reduce the
system imbalance. Every time step, the aggregator evaluates the system demand for
up/down regulation by checking the actual NRV (see Section 2.2.2. for further insight
into the Belgian electricity market). Afterwards, he decides if it is profitable to adjust
his position to provide balancing services to the system.
Near real time balancing optimization is performed during the actual day using a
rolling-horizon approach as explained in the previous chapter (see Figure 21). At each
time step the actual value of the imbalance prices and system imbalance is obtained.
The optimization is performed for the entire time horizon, in the actual case for 24
hours that are split in 15 minutes time steps, using a forecast of the future imbalance
tariff and the NRV, yet only the first time slot is implemented. The procedure is
repeated during the next periods.
The forecast of the NRV was estimated using ARIMA see Appendix A for details about
ARIMA models). The resulting model that best fits the NRV of the system is a seasonal
ARIMA (3,1,4) (0,1,0)96. The seasonality corresponds to a daily trend.
On the other hand, due to its variable nature, forecasting the positive and negative
imbalance tariffs is more challenging. For this reason more stable parameters are
defined as short term premiums (STP); these variables contain useful information
about the relationship between the MDP/MIP and the day-ahead-price πDA t and are
illustrated in Equations (5-1) and (5-2):
e%o1- = ¬Eo- − /-0 (5-1)
e%o2- = ¬fo- − /-0 (5-2)
Subsequently, these new variables are fitted with an ARIMA (3,1,3) with no seasonal
lags. Once the prognoses of the STPs are obtained, the imbalance tariff forecast can
be estimated using Equations (5-1) and (5-2). It is assumed that the current values
for MDP, MIP and /-0 are perfectly known. In reality the prices are only available after
the 15 minute window expired. A detailed description of the forecasting process can
be found in [90].
Both the day-ahead and near real time balancing optimizations are performed using
mixed integer linear programming. They are implemented in GAMS (using the
Matlab/GAMS link) and solved using the CPLEX 12.0 solver.
5.3 Optimization Algorithm

As described before the optimization is divided in two different linear programming
algorithms: a day-ahead optimization explained in 5.3.1 and a near real time
optimization described in 5.3.2.
5.3.1 Day-Ahead Optimal Nomination

The objective of the day-ahead optimization is to find the optimal schedule for the CHP
aggregator that maximizes the total revenues of the system as expressed in Equation
(5-3):
max 6 = d"-,F − -,F h

0 (5-3)
F -
In this equation, the sets ‘n’ and ‘t’ correspond to the number of CHPs that belong to
the aggregator and the time, respectively. Similarly, "-,F represents the profits
0
obtained from selling the electricity in the day-ahead market, and -,F

is the
corresponding total operational cost.
In order to estimate the day-ahead revenues, the electric power scheduled -,F

is
multiplied by the day-ahead market prices /-0 , which are assumed to be known. The
considered time step (∆$) is 15 minutes:
"-,F
0
= d-,F

∙ /-0 h ∙ ∆$ (5-4)
Next, the operational cost is estimated using Equation (5-5):
-,F
+ -,F
= / 12 ∙ d-,F
h ∙ Δ$ (5-5)
, -,F
In this equation / 12 is the fuel cost and -,F
are respectively, the primary
fuel consumption of the CHP and boiler.
Equations (3-6) and (3-7) describe the relationship between electric and the thermal
output of each CHP and the electric output and the primary energy, the heat demand
constraint is described in Equation (3-8), the state of charge of the thermal-storage
buffer is estimated in Equation (3-9), the primary fuel consumption of the boiler is
calculated using Equation (3-10), Equations (3-16)-(3-19) ensure that the micro-CHPs
operate within the technical limits.
Additionally, the minimum start up and down time are modeled using equations
(4-3)-(4-6).
Recall that contrary to the previous cases, in this chapter all the electricity generated
by the micro-CHPs is sold in the electricity market; thus self-consumption is not
considered.
5.3.2 Near Real Time Balancing Optimization

The near real time balancing optimization enables to adjust the schedule of the
aggregator in order to reduce the system imbalance and at the same time obtain extra
revenues. This occurs because, as explained in Section 2.2.2, if the position of the
aggregator helps to reduce the system imbalance, he will obtain economic benefits.
Figure 29 illustrates the global idea behind the balancing optimization; at each time
step, the actual NRV and imbalance prices are obtained. The sign of the NRV
determines the kind of regulation needed by the system. If the NRV is positive, there
is need for up regulation. On the contrary, if the NRV is negative, the system will call
for down regulation. The aggregator will provide up/down regulation only if it is
profitable; otherwise, it will keep the scheduled output (null regulation).
Figure 29: Near real time balancing optimization. The nature of the regulation depends on the
sign of the NRV. When NRV is positive, up regulation is needed. Otherwise, there is a need for
down regulation. The aggregator only performs up or down regulation if it is profitable.
As explained before, the optimization is performed in a rolling-horizon approach. This

implies that the decision of whether or not a regulation action is profitable depends
not only on the actual time step, but also on the expected values for the entire
optimization period.
The objective of the optimization is to maximize the actual day revenues; see Equation
(5-6):

max 6 ` d∆"-,F

g ∆-,F

h
(5-6)
F -
The variable ∆-,F

corresponds to the cost difference between the actual electric

energy delivered and the scheduled electricity.
The value of ∆"-,F

represents the revenue obtained from using the flexibility in the
balancing market and is estimated as shown in Equation (5-7):
Application to a Belgian case study 81
∆"-,F

` ∆-,F

∙ /- ∙ ∆$ (5-7)
In the equation /- correspond to the imbalance tariff and ∆-,F

is the difference
between the electric power generated and planned.
The flexibility of the aggregator depends on his ability to change his output during the
actual day, still complying with the heat demand constraints and the technical
constraints explained in Section 3.3. At each time step, the aggregator reschedules his
dispatch in order to help the TSO resolve his imbalance. Naturally, this operation is
aggregator prefers to keep his scheduled output (∆-,F ` 0).

performed only when the aggregator can obtain economic benefits; otherwise the

Finally, Equation (5-8) controls the direction of the electric-output change. In order to
steer balancing into the correct direction that helps to correct the system imbalance,
the electric-output change has to have the same nature as the NRV (i.e., positive or
negative). In this way, when the TSO has a deficit (NRV>0), the aggregator tends to
generate more electricity (i.e., up regulation) than planned the day before. In the
contrary case, when the TSO has a surplus (NRV<0), the aggregator tries to reduce
his output (i.e., down regulate) with respect to his nomination.

d∆-,F

∙ V"- h ≥ 0
(5-8)
F -
5.4 Application to a Belgian case study

The following sections explain in detail the case study. A global description including
the types of CHPs and dwellings involved in the model is given in Section 5.4.1.
Afterwards, the general assumptions regarding the boiler, thermal-storage tank
(Section 5.4.2), the electricity and gas prices (Section 5.4.3) are stated.
5.4.1 Description of the Case Study

The explained methodology has been applied to a hypothetical Belgian case study.
Data regarding the installed capacity of micro-CHP in Belgium was collected from three
representative institutions of the different Belgian regions [99]–[101]. According to
this information, the total micro-CHP installed power is 1.4 MWe, the larger part of the
installed capacity (more than 98 %) corresponds to Internal Combustion Engines (ICE)
with nominal power larger than 6 kWe. Additionally, there is a large number
(approximately 108 units) of small Stirling engines (1kWe) that are only used for
residential dwellings. However, Stirling engines represent only 6 % of the total installed
capacity.
In order to reduce the computational burdens, a small aggregator who holds the
characteristics of the Belgian situation is studied. The analyzed aggregator has a total
installed capacity of 114 kWe of which 6 % are Stirling engines, corresponding to a
total of 6 units with capacity of 1 kWe each. The remaining micro-CHPs (7 units) are
ICEs. The characteristics of the CHPs that integrate the aggregator are displayed in
Table 15.
Table 15 shows also the type of dwelling in which each micro-CHP is installed. The
heat demand of these buildings results from actual measurement provided by the IEA
annex 54 [102]. The optimization was performed for three weeks that are
representative for each season in 2012 (one winter, one summer and one intermediate
week). Other assumptions for the base case scenario are explained in the following
sections (see Section 5.4.2 and Section 5.4.3).
Table 15: Characteristics of the CHPs that belong to the aggregator and type of dwelling in
which they are installed.
+<-* +<-* !+<-* !+<-*

No Of CHP Type Minimum Maximum Minimum Maximum Heat Demand

CHPs [kWe] [kWe] [kWth] [kWth]
6 Stirling 1.0 1.0 5.7 5.7 Household

engine
2 ICE 5.5 5.5 12.5 12.5 Small hotel
1 ICE 5.5 5.5 12.5 12.5 Small office
1 ICE 5.5 5.5 12.5 12.5 Small
greenhouse
1 ICE 9.0 18.0 26.0 36.0 Medium office
1 ICE 9.0 18.0 26.0 36.0 Medium
greenhouse
1 ICE 25.0 50.0 46.0 81.0 Large office
5.4.2 Auxiliary Boiler and Thermal-Storage Tank

All members of the aggregator are assumed to have the same type of boiler with a
constant efficiency of 90 %. Afterwards, a sensitivity analysis is conducted to assess
the influence of this value; see Section 5.6.1.
As explained in Section 3.4.3, the capacity of the thermal-storage tank is calculated in

such a way that the thermal buffer is able to store two hours of the maximum thermal
output generated by the CHP.
Results from the Case Study 83
If the amount of energy in the storage tank at the end of the week is larger than at
the beginning, extra money is accounted for to compensate this energy (or subtracted
in the case that less energy is found at the end of the period); this is called the storage
settlement.
Additionally, dumping heat from the storage is allowed in certain extreme cases26 but
if this occurs the aggregator has to pay an extra fine (to avoid intentionally dumping
for economic reasons).
5.4.3 Gas and Electricity Prices

All boilers and CHPs belonging to the aggregator use natural gas; the price of the gas
is assumed to be constant and equal to 0.04 €/kWh [103]. The imbalance prices are
available on the Elia website [33]. Prices from 2012 have been used for this
assessment. Day-ahead prices of 2012 are taken from the Belpex website [28].
The characteristics of the market prices are summarized in Table 16. This table also
reports the total amount of up and down regulation required by the TSO during each
week.
Table 16: Average day-ahead and imbalance prices of the studied weeks and total demand for
up and down regulation.
Summer Autumn Winter
Average day-ahead price [€/MWh] 42 50 58

Average positive imbalance price [€/MWh] 35 63 87
Average negative imbalance price [€/MWh] 37 65 89
Total up regulation [GWh] 2.2 8.2 14.5
Total down regulation [GWh] 17.3 15.1 5.9
5.5 Results from the Case Study

This section gives a detailed description of the results of both the day-ahead
optimization (Section 5.5.1) and the near real time optimization (Section 5.5.2).
26
When forecasts are not accurate, dumping can be inevitable because the storage tank would
otherwise be overheated.
5.5.1 Results from the Day-Ahead Optimization

The day-ahead optimization aims to find an optimal schedule for the aggregator which
maximizes the profits of selling the electricity in the day-ahead market. Table 17 shows
the amount of electric power scheduled the day-ahead per dwelling and season.
It is remarkable that during the three seasons none of the CHP installed in households
was scheduled and the boiler was used to meet the heat demand, indicating that for
these dwellings selling the electricity generated by CHP at day-ahead prices is not
profitable due to the low electrical efficiency of the installed CHP.
It is also noteworthy that during summer only the CHP in the hotels are scheduled to
sell electricity to the day-ahead market; this result from the fact that hotels are the
only buildings with significant heat demand during summer.
Table 17: Scheduled day-ahead electric output per dwelling and season [kWe/week].
CHP Type Dwelling Summer Autumn Winter

Household 1 0 0 0
Household 2 0 0 0
Stirling engine Household 3 0 0 0
1 kWe Household 4 0 0 0
Household 5 0 0 0
Household 6 0 0 0
Small hotel 1 528 2310 2156
ICE 5.5 kWe Small hotel 2 374 1953 2112
Small office 0 132 1820
Small 0 154 1991
greenhouse
ICE 18 kWe Medium office 0 3418 7154
Greenhouse 0 0 5346
ICE 50 kWe Large office 0 4149 21084
An example of the results of the day-ahead optimization is given in Figure 30. This
figure shows the resulting day-ahead schedule for the winter week of the ICE (50 kWe)
installed in a large office.
The first and second panels of Figure 30 illustrate the day-ahead prices and the heat
demand, respectively. The third and fourth panels correspond to the day-ahead
schedule of the CHP and the state of charge (SOC) of the storage tank as a percentage
of the maximum storage capacity.
From the figure it is clear that the economic-optimization forces the CHP to operate
during day-hours when the day-ahead price and heat demand are large. On the other
hand, the storage tank is effective at detaching the heat delivery from the electricity
generation. In most of the cases, the storage-tank is charged in the evening when the
day-ahead prices are still considerably large and it is discharged at night when the DA
prices and heat demand drop.
Figure 30: Day-ahead schedule ICE (50 kWel) installed in the large office during the winter
week. The figure displays: the day-ahead price (first panel), thermal load [kW] (second panel),
scheduled electrical output [kW] (third) and storage state of charge [%] (last panel) of the
office. The CHP is used when day-ahead prices and heat demand are large.
Finally, the monetary results of the day-ahead schedule are summarized in Table 18.
Even though the optimization aims to maximize the profits, see Equation (5-3), the
operational cost is most of the time larger than the day-ahead revenues. For this
reason Table 18 reports the ‘day-ahead cost’. This corresponds to the operational cost
minus the day-ahead revenues. As expected, the highest costs appear in winter when
the heat demand is larger.
If the aggregator does not perform balancing, the overall cost would be equal to the
‘day-ahead cost’. Thus this ‘day-ahead cost’ is used as a base for comparison in the
following sections.
Regarding Table 18, it is interesting to remark that even though the micro-CHPs
installed in households were not scheduled, a day-ahead cost appears. This is the cost
of the primary energy needed by the boiler to meet the heat demand of these
dwellings. Other buildings such as the offices and greenhouses do not present a cost
during summer. This implies that there is no heat demand during this season.
Table 18: Day-ahead cost per week (operational cost minus day-ahead revenue) [€/week].
CHP Type Dwelling Summer Autumn Winter
Household 1 1.5 18.2 35.6
Household 2 22.6 38.5 69.9
Stirling engine Household 3 0.3 8.9 35.3
1 kWe Household 4 48.5 34.2 58.7
Household 5 5.7 25.4 58.2
Household 6 1.7 12.1 38.9
Small hotel 1 93.3 144.7 159.2
ICE 5.5 kWe Small hotel 2 64.9.0 85.0 100.0
Small office 0.0 7.4 97.4
Small greenhouse 0.0 4.6 91.6
ICE 18 kWe Medium office 0.0 111.1 187.1
Greenhouse 0.0 0.0 155.0
ICE 50 kWe Large office 0.0 71.7 571.8
Total day-ahead cost 238 562 1659
5.5.2 Results from the Near Real Time Balancing Optimization

The balancing optimization has the objective to maximize the revenues obtained by
changing the physical position of the aggregator during the actual day in order to help
resolve the system imbalance. The results are listed in Table 19 as ’real-time profit’.
This figure includes the extra profits made from selling the deviations in the balancing
market, and the difference in fuel cost as expressed in Equation (5-6). It is notable
that during all the three weeks (one in winter, one in summer and one in autumn)
some significant real-time profits are achieved.
Table 19: Day-ahead cost, real-time profit, settlement and total cost using a rolling-horizon
optimization.
Day-ahead cost [€/week] 238 562 1659

Real-time profit [€/week] 8 33 83
Settlement [€/week] 2 11 0
Total cost [€/week] 228 518 1576
The table also reports the day-ahead cost obtained from the previous optimization (see
Section 5.5.1) and the storage settlement that (as mentioned in Section 5.4.2) is the
money received depending on the amount of energy that remains in the storage tank
at the end of the period.
The total cost is calculated as the difference between the day-ahead cost and the
real-time profits (including the storage settlement). The table shows clearly that due
to the extra real-time profit the total cost decreases in all cases compared to the case
when only day-ahead optimization is performed. The relative decrease is larger in
summer (5 %) and more moderate in winter (2.5 %).
Figure 31 illustrates the real-time profits per type of building and per installed capacity.
During summer, the only buildings that obtain extra profit are the hotels. This is
because during this season there is a large demand for down regulation (see Table
16) and the only buildings scheduled to sell electricity to the day-ahead market are the
hotels.
On the other hand, during winter the houses receive the largest amount of real-time
revenues per installed capacity. The CHPs installed in this kind of building are never
scheduled day-ahead. This increases the opportunities of providing up regulation,
which is largely needed during this week.
Figure 31: Real-time profit per type of building per installed electrical capacity [e/kW] for all
simulated weeks.
The amount of energy that was up/down regulated is reported in Table 20. The table
also reports the real-time profits obtained while performing these operations. During
the studied winter week there was large demand for up regulation. In contrast, during
the other seasons more down regulation was required.
Table 20: Results of the near real time optimization in terms of amount of energy and total profit.
Regulation type
UP
NULL
UP
NULL
UP
NULL
DOWN
DOWN
DOWN
Energy change [kWh/week] 389 210 0 1007 1042 0 2124 595 0

Real time Profit [€/week] -7 11 4 -34 67 0 20 27 36
The real-time profit reported corresponds to the extra profit obtained depending on
the actions performed (i.e., up/down/null regulation) at the actual time slot.
Nevertheless, it is important to recall that the rolling-horizon optimization might
sacrifice profits in the actual time slot foreseeing larger incomes in the future. For this
reason, there is some extra profit even when no regulation is performed (null
regulation).
The same reasoning explains why the real-time profit in the case of up regulation
during summer and autumn is negative. Performing up regulation in the actual time
slot, even when the prices are not favorable, gives the opportunity to turn off the boiler
or perform down regulation in a later time slot.
Figure 32 explains this in detail. The first panel, illustrates the real-time profits (gray
area) obtained by one of the studied houses during one winter day. These profits,
result from the difference between the extra balancing profits (dashed line) minus the
change in the fuel cost (black solid line). The second panel, shows the scheduled and
real-time electric power generated by the CHP in the same house. The third panel,
depicts the scheduled and real-time use of the auxiliary boiler. Finally, the last panel
corresponds to the state of charge of the storage tank (SOC) as a percentage of the
maximum storage capacity. In the day-ahead schedule the storage was not used.
It can be observed that the CHP was not scheduled on the day-ahead. However, in
real time between 10:00 and 19:00 the CHP operates providing up regulation and
charging the storage tank. At some points during this period, the imbalance revenues
are lower than the extra fuel cost, resulting in negative real-time profits (e.g., between
12:30 and 14:00).
These losses can be partially compensated after 18:00, when the CHP is turned off
following the expected schedule (null regulation). The heat stored in the tank can be
used to meet the heat demand. As a consequence, the fuel cost decreases and thus
the real time profits increases.
Figure 32: Scheduled and real-time operation of a micro-CHP system installed in a residential
building during winter. The first panel corresponds to the balance revenues, The second and
third panel represent the day-ahead schedule and real-time operation of the CHP and boiler
respectively. The bottom panel shows the state of charge of the storage tank as a function of
the total storage capacity.
Sensitivity Assessment 91
5.6 Sensitivity Assessment

The influence of some of the most important parameters such as the boiler efficiency,
the gas price and the use of CHP certificates is evaluated in the following sections.
5.6.1 Boiler Efficiency

In Section 5.4.2, it was stated that for the base case the efficiency of the boiler was
assumed to be 90 % (LHV). However, there exist some commercial devices (such as
condensing boilers) with higher efficiency. For this reason the optimizations were
performed assuming an efficiency of 97 % and the outcomes are compared to the
base case in Table 21.
Table 21: Day-ahead cost, real-time profit, settlement and total cost assuming a boiler efficiency
of ηb=97 %. This is to be compared with Table 19 where ηb=90 %; the difference is expressed
in percentage between parentheses.
Day-ahead cost [€/week] 221 (-7.1%) 543 (-3.38%) 1578 (-4.3%)

Real-time profit [€/week] 1 (-87.5%) 40 (+21.2%) 110 (+32.5%)
Settlement [€/week] 2 (0%) 16 (45.4%) -3 (-%)
Total cost [€/week] 219 (-3.9%) 486 (-6.2%) 1480 (-6.9%)
The table shows the results obtained when the boiler efficiency is 97 %. Next to it the
percentual change with respect to the base scenario (ηb=90 %) is given. It is clear
that in all the cases the total day-ahead cost decreases as a result a reduction of the
fuel cost.
The real-time profits are also affected. For instance, during summer the low heat
demand and the larger boiler efficiency discourage the use of the CHP for balancing.
This result in a reduction of the real-time profits.
Contrarily, in the winter week, the real-time profits increase. This can be explained as
follows due to the larger boiler efficiency, the CHPs are scheduled less in day-ahead
than in the base case (ηb=90 %); consequently, the chances to provide up regulation
increase, which was largely required during this week (see Table 16).
5.6.2 Sensitivity on the Gas Price

The influence of the gas price on the results was evaluated by performing the
optimization for three different prices (0.03, 0.04 and 0.06 €/kWh). This is reported in
Table 22. Recall that the gas prices for the base case is 0.04 €/kWh.
As expected, increasing the gas price leads to an increase in the day-ahead cost (i.e.,
the operational cost is larger). Consequently, the micro-CHPs are scheduled less in all
the seasons. This effect impacts the real-time profit in different ways depending on
the season. During summer for example, less day-ahead scheduling results in a large
decrease of the real-time profit since, there is a large need for down regulation in this
week (see Table 16).
In contrast, during winter, the opportunities for up regulation are larger than in the
summer week. This implies that if the CHPs are scheduled less frequently in the day-
ahead market, the opportunities to provide up regulation are larger and thus the profits
increase.
On the other hand, the effects of decreasing the price are less visible but still
remarkable; in general, the day-ahead cost is lower and the CHPs are scheduled more
often than in the base case. During winter, due to the large up regulation need,
increasing the day-ahead schedule decreases the real-time profits.
During summer and autumn the real-time profits increase. The CHPs are scheduled
more often with the low gas prices. This implies more opportunities to regulate down
and leads to an increase of real-time profits. Additionally, during the studied autumn
week, negative values for the positive imbalance prices appear. Thus, if due to the low
gas prices the CHPs are scheduled in the moments of low positive imbalance prices, a
small growth of the real-time profits can be obtained, as the TSO will pay the
aggregator for reducing his output.
Table 22: Day-ahead cost, real-time profit, settlement and total cost with different gas prices.
Gas price [€/kWh] 0.03 0.04 0.06 0.03 0.04 0.06 0.03 0.04 0.06
Day-ahead [€/week] 168 238 358 371 562 895 1072 1659 2686
cost
Real-time [€/week] 16 8 0 39 33 84 52 83 424
profit
Settlement [€/week] 1 2 0 7 11 12 3 0 5
Total cost [€/week] 149 228 358 432 518 799 1017 1576 2258
Sensitivity Assessment 93
5.6.3 CHP Certificates
The ‘CHP certificate system’27 are incentives given by the Belgian government, more
specifically the Flemish region of Belgium, to promote the use of CHP. This section
studies the influence of the CHP certificates on the provision of passive balancing.
CHP certificates are granted as one certificate per MWh absolute primary energy saved
compared to separate generation of electrical and thermal energy [100]. Only CHPs
with a relative primary energy saving larger than 0% are qualified to obtain certificates.
The number of certificates a CHP installation receives is based on the absolute Primary
Energy Saving (PES) and a banding factor (bf) as stated in Equation (5-9):
¨o = 67 ∗ oe (5-9)
CHPC is the number of CHP certificates. For the case of the micro-CHPs considered in
this work the bf is one. The PES [MWh] is determined as shown in Equation (5-10):
³´
oe = ∙ ° + − µ ,
(5-10)
±² ³² ± ´ ³²
where E is the electrical energy generated in MWh, αQ and αE are, respectively, the
thermal and electrical efficiency of the CHP plant, and ηQ and ηE are the thermal and
electrical efficiency of the reference system, respectively, and specified by law as
ηQ=0.9 and ηE=0.5 for the studied case. According to [100], the minimum price for
the CHP certificates is 31 €/certificate. This price is taken as constant for the
optimization.
The objective function of the day-ahead optimization is modified in order to include

the certificate revenues:
max 6 = d"-,F + "-,F − -,F h

# 0 (5-11)
F -
In this equation, "-,F

#
are the CHP certificate revenues. These revenues are subject to
the characteristics of each CHP device, expressed as ac and bc in the linearized
Equation (5-12):
"-,F
#
= d3
∙ -,F

+ 6
∙ -,F h ∙ ∆$ (5-12)
27In the Walloon region of Belgium, a different support scheme exists; this work only
considers the Flemish system.
In this equation, -,F is a binary variable that indicates the on/off status of each CHP
unit at a given time. The objective function of the near-real-time optimization is also
adapted to take the certificate revenues into account:

max 6 = d∆"-,F

+ ∆"-,F
#
− ∆-,F

h
(5-13)
F -
The variable ∆ "-,F

#
is the extra gain or loss (in case of down regulation) of
CHP-certificate revenues.
The results of the performed optimizations with the CHP certificates taken into account,
are visualized in Table 23. As expected, with the CHP-certificate revenues, the day-
ahead cost decreases; see Equation (5-11). However, only during summer the
real-time profit increases. Similar to the case in which low gas prices are evaluated
(see Section 5.6.2), the CHP certificates incentivize the day-ahead schedule of the CHP
providing more opportunities to down regulate during summer.
Table 23: Day-ahead cost, real time profit, settlement and total cost assuming the abolishment
of CHP certificates. The percentage in parentheses refers to a comparison to the case with
certificates.
Day-ahead cost [€/week] 213 (-10% 465 (-17%) 1313 (-20%)

Real time profit [€/week] 14 (75%) 22 (-30%) 26 (-67%)
Settlement [€/week] 1 (0%) 11 (19%) 3 (-)
Total cost [€/week] 198 (-13%) 432 (-16%) 1284 (-18%)
Finally, Figure 33 compares the cases with and without certificates by summing up the
cost and revenues of the three weeks. This gives a rough estimate of the yearly
behavior. As mentioned before, without certificates the day-ahead cost increases, but
at the same time the real-time profit increases as well. Nevertheless, the
real-time-profit increase is not large enough to compensate the loss of certificate
revenues.
Consequently, if the Flemish government removes the CHP-certificates mechanism,

passive balancing might mitigate but not compensate for the absence of certificates.
Nevertheless, this statement should be further assessed by applying the developed
methodology to a larger case study that takes into account the whole year.
Figure 33: Comparison of the total cost and profits for the cases with and without CHP
certificates.

This chapter assesses the possibility of providing ‘passive balancing’ making use of an
aggregation of micro-CHPs. The aggregator bids his electricity in the day-ahead
market. During the actual day, the aggregator is allowed to deviate from its day-ahead
schedule only when this deviation contributes to alleviate the total system imbalance.
The methodology is based on two mixed integer linear programming optimizations.

The first optimization is performed the day before the actual energy delivery and the
second one runs continuously using a rolling-horizon approach. Three weeks are
simulated, a summer, a winter and an autumn week.
The results indicate that providing passive balancing can lead to a total cost decrease
of about of 2.5 % in winter and around 5 % in summer and autumn. These results are
valid even if an increase on the gas price is considered or in case that CHP certificates
are removed.
In the reviewed literature, only two studies, Abdisalaam, et al., [70] and Lampropoulos
[71], explicitly consider passive balancing with distributed units. Abdisalaam, et al.,
[70] have studied the possibility of providing real-time balancing services with an
aggregation of flexible residential loads. Lampropoulos [71] have assessed the
economic benefits of a battery energy-storage system that provides passive balancing.
Though these studies do not consider micro-CHPs, they also conclude that passive
balancing can lead to a slight increase in the profits.
These extra profits nevertheless are highly dependent on the day-ahead prices, the
imbalance prices and the position of the TSO. These variables fluctuate largely and are
uncertain at the moment of making the nomination for the day-market. In the next
chapter uncertainties are explicitly modeled using stochastic optimization.
6. Bidding of a VPP in the Day-Ahead
Market under Uncertainty

Zapata Riveros, J., Bruninx, K., Poncelet, K., and D’haeseleer. “Stochastic bidding
strategies for VPPs considering CHPs and intermittent renewables”. Submitted to:
Energy Conversion and Management. (2015)
6.1 Introduction
Energy efficiency and renewable-energy sources are fundamental parts of the
European energy policy. For this reason, efficient distributed generation technologies
such as combined heat and power coupled to district heating (CHP-DH) and
renewables (RES) technologies are promoted. Additionally, the flexibility that CHP-DH
offers to the system is seen as an option to integrate intermittent RES. From a market
perspective, this could be done by aggregating RES and CHP in a virtual power plant
(VPP).
This chapter describes a methodology developed to assess the optimal bidding strategy
of a VPP composed of a CHP-DH and RES generators. The VPP operator nominates its
energy to the day-ahead market the day before the actual delivery (D-1). In real time,
any deviation from the day-ahead schedule is settled in the imbalance market.
Trading in the electrical power market brings along several uncertainties such as the
evolution of the prices, the actual generation and load, among others. The objective
of this chapter is to develop a methodology to coordinate the participation of CHP-DH
and RES in the day-ahead market (D-1) and estimate the economic benefits of using
the CHP-DH to compensate for the uncertainty on day-ahead prices, RES forecasts and
imbalance tariffs making use of different strategies. The uncertainties are explicitly
modeled using a two-stage stochastic program.
This chapter starts by defining the concept of stochastic programming and by providing
an illustrative example that helps to understand the need for stochastic optimization
when dealing with uncertainties (Section 6.2). After the general introduction, Section
97
98 Bidding of a VPP in the Day-Ahead Market under Uncertainty
6.3 describes the case study in detail and outlines the optimization problem. The
results are presented in Section 6.4. Summary and conclusions are given in Section
6.5.
6.2 Introduction to Stochastic Optimization

In the liberalized energy market, players are often required to make decisions under a
level of uncertainty. This uncertainty stems from several sources such as: the
unpredictability of demand, the development of the energy prices or the availability of
resources [104].
In the previous chapters, the optimization problems were modeled using a

deterministic approach. The unknown data were approximated by forecasts. To deal
with the effects of uncertainty, a rolling-horizon optimization was performed.
However, stochastic programming offers a possibility to explicitly include this

uncertainty in the optimization process. The uncertainty is specified by scenarios which
are possible realizations of the stochastic process. A scenario is associated with a
probability of occurrence.
The objective of a stochastic optimization is to find a single solution for a certain

first-stage variable that is feasible for all possible scenarios and at the same time
maximizes or minimizes the desired objective function [105]. In other words, the
solution of a stochastic programming is optimal with respect to all scenarios, but not
for a particular one [106]. In this thesis a ‘two stage stochastic programming with
recourse model’ is used and the rest of the discussion will focus on this type of model.
Two stage stochastic programming requires that some of the decisions should be taken
under uncertainty (‘first-stage decisions’). Once each of the considered scenarios is
known, a new set of decisions is taken to respond to the observed outcome
(‘second-stage decisions’) [106].
Next, an illustrative example will be given to clearly illustrate the advantages of using
stochastic optimization. This example makes use of the same stochastic variables that
are used to describe the optimal bidding strategy of a CHP-DH and RES generators in
Section 6.3.1.
This simple case deals with a wind-farm operator who has to decide about the amount
of energy to be nominated in the day-ahead market. The decision should be taken the
day before under uncertainty regarding the actual generation and the price
Introduction to Stochastic Optimization 99
development. The producer faces three different scenarios that are described in Table
24.
On the day of delivery, if the expected energy does not match the actual generation,
the generator is penalized28. Thus once the uncertainties are revealed, the generator
should decide on the actual generation in order to minimize the imbalance penalties.
Table 24: Illustrative example: characteristics of each scenario and expected values.
Scenario Probability Wind Day-ahead Imbalance

generation Price Penalty
[MWh] [€/MWh] [€/MWh]
1 1/3 19 25 10
2 1/3 17 45 70
3 1/3 6 80 110
Expected value 14 50 63
The problem aims to maximize the expected profits among all scenarios Y. This is
expressed in Equation (6-1):
∀ω: max 6 = .¹ ∗ ^ 0 ∙ /¹

0 _
− ∆¹ ∙ /¹
(6-1)
ºk
In this equation, 0 is the day-ahead bid or the first-stage decision. The day-ahead
price and imbalance penalties scenarios are represented by /¹ 0
and /¹
,
respectively. The probability of occurrence of each scenario is equal to .¹ and ∆¹
corresponds to the imbalance volume, which is estimated using Equation (6-2):
∀ω: ∆¹ = ¹ − 0
R
(6-2)
The total imbalance is equal to the day-ahead bid minus the actual energy generation
¹ (second-stage decision). Finally, Equations (6-3) and (6-4) limit, respectively, the
R
day-ahead bid and the actual generation. The wind energy scenarios are represented
by E¹
ST
:
28
For the sake of simplicity this example assumes that the generator is always penalized
regardless of his position and the position of the SI. This does not correspond to the real market
behavior as explained in Section 2.2 , but it serves well for the illustrative purpose of this example.
0 ≤ 0 ≤ S d¹ h
O<P ST
(6-3)
0 ≤ ¹R ≤ ¹ST (6-4)
A common approach to formulate the wind generator’s problem is to replace the

uncertainties with their expected values (see Table 24), thinking of them as a sort of
forecast. Results are in this case obtained via deterministic models. In the studied
example, the deterministic model assumes that the actual wind output is known and
it is equal to the expected value. Thus if the output is known, there is no reason to
deviate from it and pay an imbalance tariff. As a consequence, the day-ahead bid
equals the expected wind generation, 14 MWh in this case.
Following, the deterministic solution is evaluated for the considered scenarios, the
results are summarized in Table 25.
Table 25: Illustrative example: results obtained by replacing the scenarios by the expected
value in a deterministic optimization.
Scenario DA Bid Actual Imbalance DA Profit Imbalance Total

[MWh] Dispatch Volume [€] Cost Profit
[MWh] [MWh] [€] [€]
1 14 14 0 350 0 350
2 14 14 0 630 0 630
3 14 6 8 1120 880 240
Expected profit [€] 407
Afterwards, the stochastic problem is solved. It results in a DA bid equal to 17 MWh,

which is larger than the deterministic one (see Table 26 and compare with Table 25).
This solution is evaluated for all scenarios, the results of the stochastic optimization
are reported in Table 26. In this case, the stochastic optimization accepts a larger
imbalance cost in order to obtain larger benefits in the day-ahead market.
Consequently, using stochastic optimization leads to larger profits than when the
deterministic solution is applied. The difference between the expected profits of the
stochastic program (446 €) and the expected profits obtained when fixing the uncertain
parameters to their expected value (407 €) is called the value of the stochastic solution
(VSS). In this particular case the VSS equals 39 €.
Introduction to Stochastic Optimization 101
Table 26: Illustrative example: results of the stochastic programming. In comparison with the
deterministic solution (see Table 25), the stochastic DA bid is larger, leading to larger profits.

[MWh] Dispatch Volume [€] cost Profit
[MWh] [MWh] [€] [€]
1 17 17 0 425 0 425
2 17 17 0 765 0 765
3 17 7 10 1360 1210 150
Expected Profit [€] 446
Nevertheless, the advantages of using stochastic optimization are not limited to an

increase in profit. Assume that the wind producer is facing imbalance penalties that
are largely spread. In other words, the possible imbalance penalties are either very
large or very small as illustrated in Table 27. However, the expected value remains the
same as in the previous case.
Table 27: Illustrative example: characteristics of each scenario and expected values with
spread imbalance penalties.
Scenario Probability Wind Day-ahead Imbalance

generation Price Penalty
[MWh] [€/MWh] [€/MWh]
1 1/3 19 25 5
2 1/3 17 45 10
3 1/3 6 80 175
Expected Value 14 50 63
In this case, the solution of the deterministic equivalent does not change, the
day-ahead bid equals the expected value of 14 MWh. Table 28 shows the results of
applying the deterministic solution to the new set of scenarios described in Table 27.
Table 28: Illustrative example: results of the deterministic equivalent with spread imbalance
penalties. Note the wind producer faces large cost in scenario 3.

[MWh] Dispatch Volume [€] cost Profit
[MWh] [MWh] [€] [€]
1 14 14 0 350 0 350
2 14 14 0 630 0 630
3 14 6 8 1120 1400 -280
Expected Profit [€] 233
It is important to remark that using the deterministic solution, in this case if scenario
3 occurs, instead of obtaining some profit, the producer will face larger cost. This is
because the deterministic optimization does not account for the possibility of obtaining
different wind outputs that could deviate from the day-ahead bid neither about the
possible realizations of the imbalance penalties.
On the other hand the stochastic optimization takes the uncertainty into account during
the decision process. Thus it can offset potential losses. Table 29 presents the results
of the stochastic optimization using the scenario set defined in Table 27. In this case
the DA bid is equal to 6 MWh. This optimization reacts to the large imbalance penalty
by sacrificing some day-ahead profit in order to reduce the risk of obtaining large
imbalance cost. Note that in this case the large cost of scenario 3 is avoided and the
VSS is even larger than in the original problem (67 €).
Table 29: Illustrative example: results of the stochastic programming with spread imbalance
penalties.

[MWh] Dispatch Volume [€] Cost Profit
[MWh] [MWh] [€] [€]
1 6 6 0 150 0 150
2 6 6 0 270 0 270
3 6 6 0 480 0 480
Expected profit [€] 300
Methodology 103
In summary, stochastic programming allows to explicitly account for the uncertainty

of the system. This enables not only to optimize for forecast conditions, but also for
less likely but still possible scenarios that might lead to large profits losses. For instance
in the given example, in the deterministic equivalent approach it was not possible to
model the possible deviations from the expected output, this lead to lower profits.
Additionally, if the model is limited to use the expected value as forecast, the
deterministic solution is optimal for that specific case. Nevertheless, if the actual
observation differs from the forecast, the deterministic solution is no longer optimal
and can actually lead to large profit losses. Stochastic programming is able to hedge
this risk by finding the optimal solution considering all possible outcomes of the
considered scenarios. This is especially important when the uncertain variable is largely
spread and thus the risk of losses is high. After this introduction on stochastic
programming, the next section describes the case study.
6.3 Methodology
The present study assesses the optimal dispatch of a hypothetical virtual power plant
in Belgium. The VPP system consists of a CHP–DH together with uncontrollable RES
generators (i.e., photovoltaic and wind energy). Figure 34 gives a detailed description
of the studied system; the DH plant or CHP system consists of a prime mover, an
auxiliary boiler and a thermal-storage unit that meet the heat demand of the
community. On the other hand, the electricity generated by the VPP is traded in the
electric power market. In other words, the DH plant is not responsible for meeting the
electrical demand of the community.
Figure 34: Distribution of the electricity and heat connections for the studied case. The CHP
system is composed of a prime mover, an auxiliary boiler and a thermal buffer. The electricity
generated is traded in the electricity market.
The VPP controller makes a nomination on the day-ahead market considering the
expectations for renewable energy generation in its portfolio, DA and imbalance prices,
while the heat demand is assumed to be known. During real time, the deviations
between the day-ahead nomination and the actual dispatch have to be settled in the
balancing market via the imbalance mechanisms.
In order to account for the uncertainties that the VPP faces, a stochastic program is
developed. As explained before, in a stochastic program the uncertainty is represented
using a set of scenarios.
The stochastic program studied in this work is illustrated in Figure 35. When bidding
electricity in the day-ahead and imbalance market the decision process can be split
into two different stages. In the first-stage, the decisions have to be taken under
uncertainty regarding the future RES generation and prices. In this study, the
first-stage decisions correspond to the day-ahead bidding.
During the second-stage, the day-ahead prices are known, it is also assumed that at
this point the VPP operator has a more accurate forecast regarding the realization of
the RES and thus decisions regarding the dispatched volume are taken.
Methodology 105
Figure 35: Two-stage stochastic programming for the VPP. The first-stage decisions
correspond to the day-ahead bids, whereas the second-stage decisions are related to the
actual dispatch.
The day-ahead bid (i.e., first-stage decision) is obtained using 10 day-ahead, 10

imbalance and 10 renewables scenarios that were combined in order to obtain a total
of 1000 scenarios.
The day-ahead bid is fixed and its quality is evaluated by repeating the optimization
with a larger number of scenarios, in this case a combination of 10 day-ahead, 50
imbalance and 50 renewables scenarios. In this way the results are validated in a larger
set of scenarios. This process is called ‘re-evaluation’. From the re-evaluation process
the second-stage decisions are obtained or in other words the actual dispatch per
scenario. Figure 36 visualizes the entire optimization process.
Figure 36: The results of the stochastic optimization are evaluated using a larger set of scenarios.
During the re-evaluation process, the DA bid (first-stage decisions) are fixed and the second-stage
decisions (or the actual dispatch) are obtained.
Three different bidding strategies are studied: ‘static’, ‘flexible DA’ and ‘flexible RT’ as
stated in Table 30. The major difference between the studied strategies relies on the
actual dispatch. The ’static’ case does not adjust the scheduled output of the CHP.
On the other hand, the ‘flexible DA’ and ‘flexible RT’ strategies differ from each other
in the information available at the moment of performing the reschedule (second-stage
decision). In other words, the ‘flexible DA’ reschedules the CHP output for the whole
day depending on the RES scenario, but under uncertainty regarding the imbalance
price. In contrast, the ‘flexible RT’, allows the VPP to adjust its position at each time
step depending on the RES generation and imbalance price scenarios.
The ‘flexible RT’ case is performed using a rolling-horizon approach; at each time step
the observed imbalance prices of each scenario are obtained. The optimization is
performed for the entire time horizon; for each imbalance price scenario, the expected
value estimated as the weighted average among all imbalance prices scenarios was
used as forecast. The procedure is repeated for each period.
Methodology 107
Table 30: Summary of the different bidding strategies: ‘static’, ‘flexible DA’ and ‘flexible RT’
Case Dispatch Re-Evaluation Known Variables
Static Dispatch equals to DA No re-evaluation
schedule
Flexible DA One dispatch per RES • Day-ahead price
scenario • RES generation
Flexible RT One dispatch per RES • Day-ahead price
and Imbalance prices • RES generation
scenarios • Actual imbalance price
It is important to remark that both the ‘flexible DA’ and ‘flexible RT’ correspond to two
extreme cases. When deciding on the actual dispatch, the ‘flexible DA’ assumes that
the VPP operator has no knowledge regarding the imbalance prices. In contrast, the
‘flexible RT’ assumes complete knowledge of the imbalance prices for the current time
step.
In reality, every 3 minutes the TSO provides actualized information on the current
imbalance volume. From this information the VPP can obtain a very accurate forecast
of the imbalance price in order to perform ‘passive balancing’29. However, the forecast
can still deviate from the actual imbalance price and thus the real benefits lie between
the economic savings of these two cases ‘flexible DA’ and ‘flexible RT’ operation.
The stochastic optimization was formulated as a mixed integer linear program (MILP).
The model has been developed in GAMS, and is solved using the commercial solver
CPLEX.
6.3.1 Stochastic Optimization Model

The objective is to maximize the revenues obtained by the VPP as stated in Equation
(6-5):
Á ¿
∀$, ∀\, ∀W, ∀Z: max 6 = »., ».+ ».( d"-,,
0
+ "-,¼,½,¾

− -,¼,½

hÀ ÀÀ
(6-5)
¼k ½k ¾k -k
In this equation, % is the time horizon, in this particular case, two days from which
only the first one is implemented (the second day is considered to enforce an optimal
behavior in the storage tank). The studied day is divided in 15 minutes time steps.
29 As explained in Chapter 5, passive balancing is a measure implemented by the Belgian TSO to

allow the market participants helping to reduce the total system imbalance at real time.
Furthermore in Equation (6-5), S, R and I represent the sets of scenarios of day-ahead

prices, RES generation and imbalance prices, respectively.
The revenues result from the difference between the profits obtained in the DA and
imbalance (IMB) market "-,,
0
and "-,,,+,(

respectively and the operational cost of the
CHP-DH -,,,+

. Recall that "-,,,+

is the result from settling the deviations between the
planned and delivered electricity in the imbalance market; for this reason, this variable
can take positive or negative values.
The revenues are weighted over all scenarios. The probability of occurrence of each
scenario is equal to ., for the day-ahead prices scenarios, .+ for the RES generations
scenarios and .( for the imbalance price scenarios.
The electric power scheduled to be traded on the day-ahead market -0 is calculated
in Equation (6-6):
∀$: -0 = d- + - h (6-6)
In this equation, - corresponds to the scheduled electric power of the CHP and
- to the traded RES generation.
The day-ahead bid is calculated as Equation (6-7):
∀$: -0 = d-0 h ∙ ∆$ (6-7)
It is important to remark that the day-ahead bid -0 does not depend on the scenarios.
On the other hand, the DA RES nomination - is limited to the maximum and
minimum possible values achieved by the RES scenarios at each time step:
∀$: O(F ≤

d-,+ h ≤ -

d-,+ h
O<P (6-8)
The actual electricity dispatched -,,,+

R
depends on the realization of the scenarios as
stated in Equation (6-9):
∀$, ∀\, ∀W ∶ -,,,+

R
= d-,,,+

+ -,+

h (6-9)
where -,,,+

is the actual electricity dispatched by the CHP. The imbalance error ∆-,,,+

represents the difference between the actual electric power delivered/consumed and
the day-ahead schedule. This is expressed in Equation (6-10):
∀$, ∀\, ∀W: ∆-,,,+

= -,,,+
R
− -0 (6-10)
Methodology 109
The profits are calculated as the sum of the revenues obtained from trading electricity
in the day-ahead market and the imbalance market as stated in Equations (6-11) and
(6-12):
∀$: "-,,
0
= -0 ∙ /-,,
0
∙ ∆$ (6-11)
∀$, ∀\, ∀W, ∀Z: "-,,,+,(

= ∆-,,,+

∙ /-,(

∙ ∆$ (6-12)
In Equations (6-11) and (6-12), /-,,

0
corresponds to the day-ahead price and /-,(

to
the imbalance price [€/MWh]. The imbalance revenues can be either negative or
positive depending on the nature of the system imbalance (SI) and the imbalance
tariff.
The heat balance is described in Equation (6-13):
∀$, ∀\, ∀W: d!- + !-

h + ∆!-,,,+

+ ∆!-,,,+

= !-*O<F + !-,,,+

(6-13)
during every time step for all scenarios, using the CHP !- , the boiler !- or the
According to this equation the optimization must ensure that the heat demand is met
heat that is charged to or discharged from the thermal-storage buffer !-,,,+

.

Additionally, the variables ∆!-,,,+ and ∆!-,,,+

represent the difference between the
actual thermal power delivered by the CHP and backup boiler and their planned
thermal power output, respectively.
The CHP plant is constituted by three internal combustion gas engines. Equation (6-14)
states the relationship between the electrical and thermal power output of each unit.
Similarly, Equation (6-15) links the primary energy use to the thermal and electrical
power production. Looking at this equation, it is clear that once the optimal electrical
output is selected, the thermal output is settled simultaneously and vice versa.

∀$, ∀[: -,F

= !-,F

¤ ¦ -,F

(6-14)
(6-15)

∀$, ∀[: -,F

=
K,
-,F =
K,
-,F
ÃÄ ÃÄ
³² ³´
is the primary fuel consumption of each individual CHP unit

In these equations, -,F
[, and are, respectively, the thermal and electrical efficiency of the CHP plant.
-,F is a binary variable that indicates the on/off status of each CHP unit. This variable
is independent of the scenarios and cannot change during real time generation.
The total electricity generation - and primary energy - use of the CHP plant are
estimated as the sum of the total electricity generation and fuel consumption among
the individual units, as stated in Equations (6-16) and (6-17):
TIÅ
∀$: - = -,F
(6-16)

Fk
TIÅ
∀$: - = -,F

(6-17)
Fk
The start-up cost is calculated using Equation (6-18):
∀$, ∀[: -,F ≥ /-,F d-,F − -,F h

,-<+-_>4 ,-<+-_>4
(6-18)
In this Equation /-,F

,-<+-_>4
is a positive parameter that represents a fixed cost for
starting up the machines. The fuel consumption of the boiler - is calculated as
shown in Equation (6-19):
!-
∀$: -
= ,
(6-19)
&' ()*+
It is assumed that the boiler has constant efficiency &' ()*+ . The total operational cost
of the system is estimated as the sum of the primary energy cost of the CHP system
and the start-up cost: see Equation (6-20):
∀$: -,,,+ = /-12 ∙ ∆$ ∙ d- + - + ∆-,,,+

+ ∆-,,,+
h + -
,-<+-_>4
(6-20)
and ∆-,,,+
In Equation (6-20) ∆-,,,+
correspond to the fuel use difference that
appears when the CHP system is rescheduled and /-12 is the fuel price.
The state of charge (SOC) of the storage tank !-,,,+

is calculated using Equation (6-21).
The efficiency of the storage tank &,- is assumed to be constant. Recall that !-,,+
30
is
30
The efficiency of the storage tank represents the percentage of thermal energy that is preserved
by the storage after it has been stored during one time step of 15 minutes. For example, a storage
tank with an efficiency of 90 % is charged with 1kWh_thermal after 15 minutes, only 0.9 kWh_thermal
remains.
Methodology 111
the average thermal power (kWthermal) that is charged to/discharged from the storage
tank every time step; consequently, it can take both positive and negative values:
∀$, ∀\, ∀W: !-,,,+

= &,- ∙ !-,,,+

+ !-,,,+

∙ ∆$ (6-21)
Equations (6-22) - (6-23) ensure that the optimization does not exceed the operational
limits of the CHP.
∀$, ∀[, ∀\, ∀W: -,F ∙ !O(F

≤ !-,F

+ ∆!-,F,,,+

≤ !O<P
∙
-,F (6-22)
∀$, ∀[, ∀\, ∀W: -,F ∙ O(F

≤ -,F

+ ∆-,F,,,+

≤ O<P

∙ -,F (6-23)
Equations (6-24) and (6-25) prevent exceeding the operational limits of the storage
tank and boiler
∀$, ∀\, ∀W: 0 ≤ !-,,,+

≤ !O<P

(6-24)
∀$, ∀[, ∀\, ∀W: 0 ≤ !-,F

+ ∆!-,F,,,+

≤ !O<P
(6-25)
6.3.1.1 Case Specific Constraints
The previously explained equations apply to the ‘flexible DA’ case; in this subsection,
the necessary modifications to these equations for the other cases are described.
∆-,,,+ , ∆!-,,,+ , ∆!-,,,+ , ∆-,,,+

First, the ‘static’ case is modeled by setting the variables

, ∆-,,,+
to zero. In other words, the CHP is not
allowed to deviate from its scheduled output.
On the other hand, the ‘flexible DA’ and ‘flexible RT’ have the same day-ahead
This is because in ‘flexible DA’ the imbalance volume decision ∆-,,,+

schedule; thus, it is only necessary to modify the equations that involve RT decisions.

is considered
independent of the imbalance price /-,(

scenarios. In other words, the imbalance
volume is settled before knowing the imbalance prices but with knowledge of the RES
generation and day-ahead prices.
In contrast, in the ‘flexible RT’ case the imbalance volume is estimated depending on
scenarios such as: -,,,+,( , -,,,+,( , !-,,,+,( , -,,,+,( , ∆-,,,+,( , ∆!-,,,+,( , ∆!-,,,+,(
the imbalance price scenarios and thus several variables become dependent of these
R
, !-,,,+,(

,

∆-,,,+,( , ∆-,,,+,( , ∆-,,,+,( and consequently the equations where these variables appear

are also dependent on the imbalance tariffs.

6.3.2 Application to a Case Study

The developed methodology is applied to a hypothetical case study that assumes a
large penetration of renewable energy and the installation of a district heating facility
in the city of Leuven (Belgium) which resembles a typical small European city. The
heat demand profile is approximated through a bottom-up approach. Data concerning
the building stock of Leuven, provided by the municipality [107], is combined with heat
demand benchmarks [108] and synthetic load profiles [109] to create the heat demand
profile.
It is assumed that the thermal energy is sold to the community at a constant retail
price. As a consequence, they do not influence the optimization results. For this reason
these revenues are not included in the optimization.
The size of the CHP is estimated using the maximum rectangle method; see Section
3.4.1. It is assumed that the DH system is operated by three parallel internal
combustion gas engines (ICGE). Each ICGE has a maximum electrical output equal to
18 MWe. The electrical and thermal efficiency are = 44 % and = 48 %,
respectively.
Regarding the renewable generation it is assumed that the total installed capacity
amounts to 20 MWe, of which 14 MWe corresponds to solar panels and 6 MWe to wind
turbines. These numbers reflect the current (2014) proportion of photovoltaic and wind
installation in Belgium. The renewable energy scenarios are based on data provided
by the Belgian TSO [33].
The optimization will be performed for three different weeks, each representing the
behavior of a season (summer, intermediate and winter). The total heat demand and
the RES generation of each of the studied weeks are summarized in Table 31.
Table 31: Heat demand and RES generation of the studied weeks.
Summer Intermediate Winter
Heat demand [MWh/week] 1199 2598 6169

RES generation [MWh/week] 1201 1011 879
Finally, the day-ahead and imbalance price scenarios are also based on historic data
of the Belgian electricity market [28], [33]; the gas price is assumed to be constant
and equal to 39 €/MWh. The gas price corresponds to the average price that was paid
by small and medium sized enterprises in 2014 [103].
Methodology 113
6.3.3 Scenario Generation and Reduction

As mentioned before, to represent the uncertainty that stems from the renewable
energy forecast errors, the day-ahead and imbalance prices, the underlying stochastic
processes are approximated using a group of scenarios. A scenario corresponds to a
possible realization of the stochastic process, thus a large enough scenario
representation should capture the variability and uncertainty of the random variables.
The statistical scenario generation technique developed in [110], [111] and described
in detail in [112], is used in this thesis to generate a large set of scenarios. This
technique makes use of historical forecast errors (e.g., difference between the
forecasted variable and the measured output of this variable during the previous years)
to create different scenarios. Once the ‘error scenarios’ are obtained, they are added
to the actual forecasted variable (e.g., wind power forecast of the next day) to obtain
the different scenarios for each variable (e.g., wind scenarios).
Yet, using a large number of scenarios is computationally expensive. Therefore, a

reduction technique is necessary to trim the number of scenarios. Towards this aim, a
modified version of the fast-forward scenario reduction algorithm that includes the
inherent characteristics of the optimization problem is implemented, as described in
[112], [106]. The scenario generation and reduction technique is explained in detail in
Appendix B.
For the purpose of this work, a total of 200 day-ahead, 200 imbalance and 200
renewables scenarios were generated independently. Nonetheless, for computational
efficiency, required because of the extensive scope of the problem, the orginal set was
reduced to 10 scenarios for each parameter in the first optimization, resulting in a total
number of 1000 combinations of scenarios. Afterwards, as explained before, the
reevaluation process has used a larger number of scenarios leading to a total of 25000
combinations of scenarios31.
6.3.4 Limiting the Imbalance Volume

The results obtained when applying the optimization described in 6.3.1 during the
intermediate season for the ‘flexible DA’ case are illustrated in Figure 37. In this figure,
the black line represents the scheduled CHP electrical power, the shaded area
31For the re-evaluation process the combination of 10 day-ahead, 50 imbalance and

50 renewables scenarios was used. Leading to a total of 2500 scenarios.
corresponds to the actual electrical power delivered by the CHP32. It can be observed
that at several moments the CHP was scheduled to operate at maximal output, whilst,
it only delivers the minimum capacity (e.g., see Figure 37 between 14:00 and 16:00).
In contrast, when the CHP was scheduled to provide the minimum electrical power, it
delivered the maximum power.
Figure 37: Resulting original DA bid (solid line) and actual dispatch of the CHP (gray area).
The difference between day-ahead schedule and real-time dispatch creates a large imbalance
of the order of 40 MW.
This behavior creates a very large imbalance volume, of the order of 40 MW. The aim
of this large imbalance volume is to profit from the price difference between the
day-ahead and balancing markets.
This occurs because the VPP operator does not have enough information regarding
the market reactions. The imbalance prices are calculated ex-post once the total
system imbalance is known. If, for example, the VPP operator expects large imbalance
prices at a certain hour (meaning that the system is short) he, as well as other market
participants, might decide to create large positive deviations. This might result in an
overcompensation of the system leading to surplus of energy which is generally
characterized by very low imbalance prices. As a consequence, the VPP will not only
lose profits due to the low imbalance prices, but also lose the opportunity to trade
large amounts of energy in the day-ahead market.
Similar results are reported by Fleten, et al., [113] and Vardanyan, et al., [114]. These
authors agree that, though the results are ‘optimal’ from a modeling perspective, a
32
Keep in mind that the electric energy traded in the day-ahead market is composed of the
electricity generated by the CHP and the RES generation. Nevertheless, for illustration purposes
only the electricity bided by the CHP appears in Figure 37.
Methodology 115
real player will have several reasons to avoid this behavior. One of these reasons, apart
from the profit loss, is that, as mentioned before, the TSO expects unbiased bids from
the market player. If the TSO realizes that a player is performing arbitrage, he can be
penalized. The reason for this is that the imbalance market will be affected if several
players behave this way.
For these reasons, a penalty function is implemented to limit the imbalance volume
caused by the VPP. In the present work a piecewise linear function is used to limit the
imbalance volume [113]. This function emulates the expected behavior of the market
by penalizing large deviations from the DA schedule.
The penalty function is illustrated in Figure 38. This function is regarded in [113] as a
type of risk model named ‘shortfall cost’. Thus the definition of the
parameters ?1 -,,,+ , ?2 -,,,+ , ?3 -,,,+ , ?CD , ?CDi and ?CDÈ , shown in Figure 38, depends
completely on the preferences of the user, in this case, on how much the VPP operator
is willing to trade in the imbalance market.
In this particular case, if the total imbalance is between 0 and 20 % of the total
installed capacity, the resulting penalization is equal to 3 % of the day-ahead price.
For deviations between 20 % and 30 % the penalty is equal to the day-ahead price
realization. From 30 % and above, the marginal penalty is 10 times the value of the
day-ahead price. As such, a player will only deviate from his DA schedule if large profits
are to be expected.
Figure 38: Volume penalty function. This piecewise linear function was used to penalize
imbalance volumes [113]. Large deviations from the DA schedule are strongly penalized.
The following constraints are added to the model in order to include the penalty
function. First, the absolute value of the total imbalance is split in the three pieces that
comprise the penalty function ?1 -,,,+ , ?2 -,,,+ , ?3 -,,,+ as shown in Equation (6-26):
∀$, ∀\, ∀W: ∆-,,,+

= ?1 -,,,+ + ?2 -,,,+ + ?3 -,,,+ (6-26)
Splitting the imbalance volume makes it possible to penalize large imbalance more
than the small deviations as shown in Equation (6-27):

∀$, ∀\, ∀W: -,¼,½
;
= d0.3 ∙ ?1 -,,,+ p ?2 -,,,+ p 10 ∙ ?3 -,,,+ h ∙ /-,(
0
∙ ∆$ (6-27)
In this equation -,¼,½

;
corresponds to the total imbalance penalty. The
variables ?1 -,,,+ , ?2 -,,,+ and ?3 -,,+ are constrained using Equations (6-28) - (6-31):
∀$, ∀\, ∀W: ?1 -,,,+ x ?CD ∗ O<P

;
(6-28)
∀$, ∀\, ∀W: ?2 -,,,+ x ^?CDi g ?CD _ ∗ O<P

;
(6-29)
∀$, ∀\, ∀W: ?3 -,,,+ x ^?CDÈ g ?CDi _ ∗ O<P

;
(6-30)
where ?CD , ?CDi and ?CDÈ represent the percentage deviation of the schedule with
respect to the total installed capacity of the VPP O<P
; ; in this case, 20 %, 30 % and
100 %, respectively.
Finally, the deviation penalty is included in the objective function as follows:

Á ¿
∀$, ∀\, ∀W, ∀Z: max 6 ` »., ».+ ».( d"-0 p "-,¼,½,¾

g -,¼,½

g -,¼,½
;
h ÀÀÀ
(6-31)
¼k ½k ¾k -k
Recall that, when applied to the ‘flexible RT’ case, the previously stated Equations
(6-26) to (6-31) are dependent also on the imbalance-price scenarios.
The resulting DA schedule and actual dispatch using the designed penalty function are
depicted in Figure 39. The results correspond to the same analyzed scenario shown in
Figure 37. It can be concluded that using a volume penalty function decreases the
deviation between the day-ahead schedule and actual dispatch; thus, more realistic
day-ahead market bids are obtained. In Section 6.4, further results using this model
are reported.
Figure 39: Resulting DA bid (solid line) and actual dispatch of the CHP (gray area) when using
an imbalance volume penalty. This methodology is effective in limiting the schedule deviations.

As stated in Equation (6-5), the total profits of the studied VPP can be estimated as
the profits for trading the electricity in the day-ahead and imbalance market minus the
operational cost. These figures are broken down in Table 32 for each of the studied
strategies.
Table 32: Day-ahead profit, fuel cost and imbalance profit for the different bidding cases and
studied seasons. [k€/week].
Summer Intermediate Winter
Flexible DA
Flexible DA
Flexible DA
Flexible RT
Flexible RT
Flexible RT
Static
Static
Static
DA revenues 145.1 150.0 150.0 208.6 208.4 208.4 340.0 338.6 338.6
Fuel cost 96.3 95.5 91.7 193.9 191.6 180.8 416.8 415.8 398.9
Imbalance
-1.3 -1.1 1.3 -5.6 -4.9 -4.3 -4.7 -1.57 1.3
revenues
Total profits 47.5 53.4 59.6 9.1 11.9 23.3 -81.5 -78.8 -58.9
Table 32 shows that the operation of the VPP leads to economic profits during all
seasons except for winter. During winter due to the large heat demand, the total
revenues are not enough to offset the fuel cost. Nevertheless, it is important to recall
that this cost should be reimbursed through sales of heat. Thus, the minimum heat
unit cost that should be charged to the consumer, to cover at least the operational
cost of the district heating during winter, lies between 9.5 €/MWh and 13.6 €/MWh33.
During the other seasons this heat unit cost is negative. However, it is important to
remember that in this work the investment and maintenance costs are not taken into
account.
In addition, from Table 32 it can be deduced that in comparison with the ‘static’
operation, the ‘flexible DA’ operation results in larger relative increase of the profits
during summer and the intermediate season than during winter. The largest profits
are achieved when the ‘flexible RT’ operation is applied. During winter the difference
between the ‘flexible RT’ operation and the ‘static’ case amounts to approximately 5 %
of the fuel cost.
As explained before, the main difference between ‘flexible DA’ and ‘flexible RT’ relies
on the information available at the moment of taking the dispatch decisions. Figure 40
illustrates this further.
33The heat unit cost was estimated dividing the total operational cost by the heat demand of the
season.
Figure 40: Comparison between ‘static’, ‘flexible DA’ and ‘flexible RT’ cases. The upper panel
shows both the CHP electrical power scheduled DA (solid line) and the actual electrical dispatch
(gray area). The second panel depicts the expected RES generation (solid line) and the actual
RES output (gray area). The third panel shows the total remaining imbalance of the VPP and
finally, the last panel illustrates the day-ahead (black line) and imbalance prices (gray line).
The first column corresponds, to the ‘static’ case, the second column to the ‘flexible
DA’ case and the third column to the ‘flexible RT’ strategy for a specific imbalance price
scenario, between 8:00 and 14:00. The upper panels illustrate both the day-ahead and
real-time electrical power generation of the CHP34. The same parameters are depicted
in the second panel for the RES. The total remaining imbalance (RES error plus CHP
deviation) is shown in the third panel. Finally, in the bottom panel the DA and
imbalance prices are shown.
Looking at the figures it can be observed that the ‘flexible DA’ strategy uses the
cogeneration unit to compensate the lack of generation of the RES. This is done by
increasing the output of the CHP on real time. The remaining imbalance is zero. This
is done because during the dispatch optimization (re-evaluation) the ‘flexible DA’
strategy does not have information on a specific imbalance price scenario, but on a
large set of scenarios that can take positive or negative values and thus, it decides to
minimize the total imbalance volume.
In contrast, in the ‘flexible RT’, the CHP does not compensate for the lack of electric
power generation of the RES but decreases its generation to create a larger negative
imbalance. The reason for creating this negative deviation is the negative imbalance
tariff that appears in this scenario. A low imbalance penalty is an indication that the
system is long. Thus when the CHP generates a negative imbalance, it not only
increases the profits of the VPP operator by saving fuel cost, as shown in Table 32,
but it also helps the grid to alleviate the total system imbalance.
The behavior of the different operating strategies among the three studied seasons is
illustrated in Figure 41. The first figure shows the heat demand (gray area) and thermal
power generated by the CHP (blue line) and boiler (red area) of a characteristic day of
each week. The illustrated parameters correspond to the dispatched amounts for a
specific scenario combination.
When analyzing Table 32, it was stated that during winter the ‘flexible DA’ operation
and the ‘static’ case result in a large cost and the difference between these two cases
was almost negligible when compared against the fuel cost.
A first reason for this is clear when looking at Figure 41. During the winter, due to the
large heat demand, the CHP is running almost continuously, leaving less flexibility
available. In addition, Table 31 shows that during this season the RES generation is
low. As a consequence, lower imbalance volumes due to renewables appear.
34
Recall that the total bid is the combination of the CHP and RES expectation and the heat
demand. Nevertheless, for illustration purposes, Figure 40 shows the CHP and RES generation
separately.
On the other hand, Table 32 also shows that the cost reduction achieved using the
‘flexible RT’ operation is related to a decrease in the fuel cost. This is also visible in
Figure 42 during the intermediate and winter seasons. In comparison with the other
strategies, in real time, the ‘flexible RT’ operation uses the CHP less, activating the
boiler more often. As the day-ahead schedule of both the ‘flexible DA’ and ‘flexible RT’
is the same, it can be deduced that the ‘flexible RT’ operation decreases its output,
generating negative imbalance in order to obtain benefits from the imbalance prices.
As explained before, creating an additional imbalance does not necessary aggravate

the situation of the electric grid (‘passive balancing’). In fact, in Belgium the imbalance
prices are an indication of the status of the system. Thus a low imbalance price
suggests that there is excess of generation in the grid. As a result, by slightly
decreasing the output of the CHP, the VPP owner is not only saving fuel but also
helping the grid and will be remunerated for this via the imbalance mechanism.
Figure 41: Comparison of the heat flow for the different strategies. The gray area corresponds
to the thermal demand. The blue line represents the thermal power output of the CHP. The
black line shows the average power charge to (negative values) or discharged from (positive
values) the storage tank. Finally, the red area corresponds to the thermal power provided by
the auxiliary boiler.
6.5 Conclusions and Further Work

This work was focused on developing a bidding strategy for a VPP composed by a CHP-
DH and RES generation. The bidding strategy was estimated using stochastic
optimization. This optimization takes into account uncertainty regarding RES electric
Conclusions and Further Work 123
power generation, day-ahead and imbalance prices. As a consequence, the CHP

operation was scheduled not only to cover the heat demand but also to compensate
for the possible forecast errors of the RES.
In the literature, several studies use stochastic programming to account for

uncertainties. The case of optimal wind-power integration in the electric-power system
has been extensively studied ([72], [115]–[117]). Similar to the work developed in this
chapter, other studies assess the coordination of dispatchable and RES generators.
Garcia-Gonzalez, et al., [118] evaluate the coordination of a wind farm and a pumped
hydro-storage plant (PHS). Pandžić, et al., [67] analyze a VPP that aggregates a wind
power plant with a PHS and a conventional electric-power plant using stochastic
optimization. These studies do not assess the specific interaction with heat demand
(CHP unit), neither the benefits that a VPP can obtain from using its flexibility in real
time to react to the imbalance prices.
In this PhD thesis, three different strategies were assessed: ‘static’, ‘flexible DA’ and
‘flexible RT’ operation. In the first strategy the RES forecast errors are settled in the
imbalance market and the CHP flexibility provided by its thermal-storage tank is not
used. The other strategies use this flexibility to accommodate the forecast errors. In
the ‘flexible DA’ case the CHP is rescheduled only once when accurate information
regarding the RES generation is obtained. On the other hand, the ‘flexible RT’ adjusts
the CHP output every time step depending on the actual imbalance price. These
strategies were applied to a hypothetical case study that uses the Belgian city of
Leuven as an example.
Furthermore in order to obtain realistic DA bids, a volume penalty was implemented

to penalize large deviations from the original schedule.
The results of the ‘flexible DA’ case show a significant profit increase during summer
and the intermediate season. In contrast, during winter, the difference between the
‘static’ and the ‘flexible DA’ case is negligible compared with this fuel cost. Better results
are obtained when the ‘flexible RT’ strategy is applied. In this case when the VPP is
allowed to react to the imbalance prices, thereby changing its position close to real
time, the profits increase in all seasons.
This indicates that CHP-DH could help not only to reduce the cost due to the forecast
errors but may also help the grid to reduce the system imbalance. However, this
economic advantage should be valued against the additional investment needed to
perform the accurate control on a real time basis. Further work should assess the
investment, maintenance and operational costs needed to perform real time control
and the effects of considering other technologies such as heat pumps in the VPP.
Additionally, estimating the impact of passive balancing on the grid was out of the
scope of this work; further research should be done in this area to confirm the
assumption that using passive balancing can help to reduce the system imbalance.
7. Summary and Conclusions
This work has explored different control strategies for the optimal techno-economic
operation of a group of distributed electricity generation devices fully incorporating
thermal demand aspects. Special focus has been given to what was called CHP
systems, consisting of a CHP device, a back-up boiler and a thermal-storage tank, to
examine its ability to provide flexibility to support the grid and to integrate renewable
generation. The following sections (7.1, 7.2 and 7.3) answer the three research
questions, that have been addressed in this research and that are stated in the
introduction of the thesis. Section 7.4 summarizes the general findings of this PhD
thesis. To finalize, Section 7.5 gives recommendations for further work.
7.1 Self-Balancing Using Residential micro-CHPs

The first question assessed in this work is the evaluation of the potential to use micro-
CHP to balance especially meteorological forecast errors, to reduce the local imbalance
volume and the associated imbalance penalties.
Self-balancing is the process of rescheduling electric power generators in order to

balance their portfolio ex-ante (i.e., before the hour of delivery) aiming to
accommodate forecast deviations. In the case considered in this thesis, self-balancing
was assessed in a VPP that consisted of a group of residential dwellings, equipped with
micro-CHPs and photovoltaic installations.
The developed methodology is based on two linear optimization programs. The first
one ‘day-ahead optimization’, aims to find the optimal schedule of the micro-CHPs.
The second one, ‘self-balancing’, was implemented in a rolling-horizon approach. Each
time step, once the actual output of the PV has been obtained, the optimization decides
on the optimal dispatch of the micro-CHPs.
If the imbalance prices are appropriately designed, a VPP operator should have
sufficient incentives to always reduce his imbalance ex-ante. Nevertheless, reducing
this imbalance comes at a cost. In this thesis, two different cases were analyzed, a
‘forced self-balancing’ and an ‘economic self-balancing’ strategy. In the former one,
the VPP is forced to minimize the deviations whilst disregarding the imbalance prices.
In contrast, the economic self-balancing strategy takes the imbalance tariffs into
account and performs self-balancing only if it is profitable to do so.
125
126 Summary and Conclusions
The results show that, due to its flexibility, micro-CHPs are able to effectively reduce
the imbalance volume. The largest imbalance volume reduction is achieved in winter
when around 95 % of the forecast errors can be compensated by the micro-CHPs using
the ‘forced self-balancing’ strategy. On the other hand, the imbalance volume
reduction in summer and spring is moderate (50 % in spring and 60 % in summer).
However, this imbalance volume reduction is not always in line with the reduction of
the imbalance cost. The reason for this is twofold. First, forcing the CHP to operate in
order to compensate for the lack of generation of renewables implies an increase of
the operational cost that has to be weighed against the cost paid to settle the
imbalance in the market. Second, in case of surplus generation by renewables
compared to the original forecast, the VPP is rewarded if the imbalance of the VPP
helps to reduce the total system imbalance.
It was found that during spring and summer, forcing an imbalance reduction using
micro-CHPs can lead to an increase in the total operational cost. In addition, using the
‘economic self-balancing’ during summer results in an imbalance volume reduction of
only 2 %.
This is especially critical since the largest generation of PV is expected during the
summer season, whilst that season is usually also characterized by the largest forecast
deviations. However, at the same time, during summer the heat demand is the lowest
and consequently the motivation for using CHPs is low.
Additionally, the results show that with the best case scenario namely ‘economic
self-balancing’ with the perfect price forecast, a total cost saving of 4 % in summer
and 1 % in winter can be achieved. This level of savings does not seem to be enough
to motivate CHP owners to join a VPP to provide self-balancing services. In addition,
the implementation of this kind of strategy requires extra investment in ICT that should
be offset by the additional profits.
In conclusion, the ‘self-balancing’ strategy in the analyzed case study is not yet
considered as economically profitable. Nevertheless, this technique should be studied
for other dwellings with a larger and more constant heat demand and with other CHP
devices that have better electrical efficiencies.
Passive Balancing with an Aggregation of micro-CHPs 127
7.2 Passive Balancing with an Aggregation of

micro-CHPs
The second question addressed in this thesis is the possibility to provide passive
balancing making use of micro-CHPs. Passive balancing occurs when a BRP contributes
to restore the balancing of the system without being actively selected by the TSO via
the merit-order mechanism. In other words, passive balancing is when the internal
imbalance of the BRP has the opposite direction of the total system imbalance.
The potential of passive balancing was assessed for an aggregation of micro-CHP

devices installed in different dwellings, including households and service buildings such
as hotels, greenhouse facilities and offices. All electricity generated is traded in the
electric power market (i.e., self-consumption is not considered).
The methodology is based on two different optimizations: a ‘day-ahead optimization’

that aims to find the optimal nomination for the day-ahead market and a ‘near real
time optimization’. The latter has been implemented in a rolling-horizon approach that
decides on the actual dispatch of the CHP, taking into account the actual values of the
imbalance prices, the net regulation volume (NRV) and the forecast of these variables.
According to the day-ahead optimization, the micro-CHPs are scheduled to operate

when the heat demand and the prices are large. However, it was observed that the
domestic micro-CHPs were not scheduled at any time. This is because residential
micro-CHPs have lower electrical efficiencies and higher heat to power ratios than the
larger counterparts. Thus, as the electricity of the aggregator is sold at day-ahead
price, the domestic micro-CHPs cannot generate electricity at competitive prices and
have no motivation to operate. Instead, the households make use of the boiler to meet
the heat demand. This indicates that domestic micro CHPs are more appropriate for
covering the electric self-consumption of the household.
The results from the day-ahead optimization are used as input for the near real time
optimization. In the actual day the VPP is allowed to deviate from its schedule and to
create a deviation in the opposite direction of the system imbalance. This is performed
only when it is profitable to do so. This operation leads to an extra ‘real time profit’.
In conclusion, passive balancing leads to a total cost decrease in all the seasons
compared to the case when only day-ahead optimization is performed. The cost
decrease is larger in summer (around 5 %) and moderate in winter (about 2.5 %).
In addition, the influence of several parameters such as the gas price, the boiler
efficiency and the governmental support (or CHP certificates) was investigated. These
parameters were varied in a sensitivity assessment. The results indicate that even
when the analyzed parameters change, there is always an opportunity to obtain extra
economic benefits providing passive balancing.
Nevertheless, it was also demonstrated that the opportunities to provide passive

balancing depend largely on the day-ahead schedule. For instance, if the CHPs were
scheduled to operate at maximum load, it is not possible to provide up regulation; vice
versa, if the CHPs are at minimum load or not operating, down regulation is impossible.
For this reason, it is expected that large profits could be achieved if the expectations
of imbalance prices are taken into account already in the day-ahead optimization. This
was investigated by developing and applying the stochastic program (see Chapter 6).
By using stochastic optimization, it is possible to make decisions before observing the
actual stochastic parameter, in this case the imbalance prices. The uncertainty is
characterized by a probability distribution of the parameter.
Finally, it is important to remark that, during this work, it was assumed that the
aggregator can react to the actual imbalance prices and net regulation volume.
However, this information is known only ex-post. This fact can decrease the estimated
benefits and increase the risk that the VPP has to take when providing passive
balancing.
7.3 Bidding of a VPP under Uncertainty

The final research question that was investigated in this thesis is the added value of
using CHP combined with district heating networks (DH) to compensate for the
uncertainties regarding electricity generation and market-price development.
The analyzed VPP consists of a CHP system linked to a district heating network and to
a large installation of PV and wind energy generators. The VPP nominates its electricity
in the day-ahead market and settles the difference between the planned electricity
generation and actual electric power generation in the imbalance market
Stochastic programming was used to explicitly model the uncertainties of the system.
Using a small example, it was demonstrated that stochastic programming should be
preferred over a deterministic model when uncertainty is present. This is because
stochastic programming leads not only to larger profit but also helps to hedge against
very large losses.
In this work, a two stage stochastic programming approach is used. The first-stage
decisions (i.e., the decisions that are taken under uncertainty) are the optimal day-
Bidding of a VPP under Uncertainty 129
ahead bids. The second-stage decisions (i.e., the decisions that are taken once the
uncertainty is resolved) are the actual dispatch of the CHP-DH and RES generation.
The study considers three different strategies: ‘static’, ‘flexible DA’ and ‘flexible RT’
operation (recall, DA stands for day-ahead; RT stands for real time). In the static case,
the forecast deviations are always settled in the imbalance market. In contrast, the
‘flexible DA’ and ‘flexible RT’ approaches use the CHP to accommodate the forecast
errors of the RES generation. The difference between these two cases is that in the
‘flexible DA’ philosophy the reschedule is performed once a day when more accurate
information on the RES generation is obtained, whereas in the ‘Flexible RT’ case, the
reschedule is performed every time step once the actual imbalance prices are known.
The results of the ‘flexible DA’ case show a moderate profit increase during the summer
and the intermediate season. In contrast, during winter, the difference between the
‘static’ and the ‘flexible DA’ case is negligible compared with this fuel cost. Better results
are obtained when the ‘flexible RT’ strategy is applied. In that case, i.e., if the VPP is
allowed to react to the imbalance prices changing its position close to real time, the
profits increase in all seasons.
This price difference stems from the fact that the ‘flexible RT’ strategy has complete
knowledge of the actual day-ahead prices and thus can profit from this information by
generating small deviations to provide passive balancing. Nevertheless, the actual
system status is known only ex-post and thus the real savings lie in between the
‘flexible DA’ and ‘flexible RT’ cases.
It was also observed that the heat demand substantially influences the possibility of
operating a CHP using a ‘smart strategy’. It is clear that during winter the large heat
demand motivates the CHP device to operate in a more continuous way leaving less
space for flexibility. An additional fact in winter is that the amount of RES generation
(considered in this study-mainly PV) is moderate in comparison with other seasons. As
a consequence, the forecast deviation is also lower and thus compensating for these
errors is less attractive for the VPP operator.
During summer, some savings can be achieved by down regulating. However, the
motivation to operate the CHP are low during this season due to the low heat demand.
Consequently also the opportunities to provide flexibility are small.
7.4 General conclusions

The work done during this PhD research demonstrates that cogeneration units can
play an important role for increasing the flexibility of the electric-power system. This
flexibility stems from the thermal-storage tank that decouples the thermal demand
from the electric-power generation. This way, cogeneration systems can help to
compensate forecast errors of RES-E, increase the VPP profits by providing passive
balancing and mitigate the effects of system uncertainties.
From the results of the self-balancing strategy, it is clear that it is not always profitable
to use a strategy that aims to reduce the own imbalance of the VPP. However,
providing real-time balancing services or passive balancing can be a profitable option.
This is because this strategy takes into account the information provided by the Belgian
balancing market in order to steer the own position in the opposite direction of the
expected system imbalance. Nevertheless, this expected imbalance is still subject to
uncertainties. The last part of this work demonstrates that the system uncertainties
can be accounted for using stochastic programming and that cogeneration coupled
with a district-heating network can help to cope with this uncertainty.
Furthermore, it is shown in all the evaluated cases that the economic benefits of
exploiting the flexibility of cogeneration units largely depend on the type of CHP, the
kind of building, the information available and the seasonal variation.
Finally, it was demonstrated that cogeneration systems can provide real-time services
to the electricity grid and that in the investigated case studies these new market
opportunities result in moderate economic benefits.
7.5 Recommendation for Further Work

A first recommendation for further work is to apply the developed algorithms to other
CHP technologies (e.g., fuel cells) and to other distributed devices such as heat pumps.
With regard to fuel cells, this kind of technology promises large electric yields and
excellent performance at part load. Heat pumps differ from CHP in that they are
suitable for well-insulated dwellings with lower heat demand. The HPs are largely
promoted due to their proven efficiency and in the following years, it is expected that
an increasing number of heat pumps in households and service buildings will be
installed.
Future work on the electricity market and the electric power system modeling should
consider the impact of the intraday market. During the development of this work, it
Recommendation for Further Work 131
was assumed that the VPP operator could bid the electricity in the day-ahead market
and settle the imbalance errors in the balancing markets, thus neglecting the
importance of the intraday market. Nowadays, this assumption is valid since the
liquidity of the intraday market is low. Nevertheless, during the last years an increasing
interest in the intraday market has appeared. Several countries across Europe are
cooperating to improve the liquidity of this market. It is believed that a correctly
functioning intraday market could help to adjust the forecast errors ex-post without
making use of the reserves.
During most of the development of this thesis the investment cost has been ignored,
not only the cost related to the CHP system itself but also the upfront cost related to
the ICT necessary to implement the smart strategies and control a wide range of
distributed generation devices. Taking these costs into account deserves to be looked
at in future work.
Another recommended line of research is to analyze the impact of passive balancing

in the electrical system. This work assumes that providing passive balancing helps the
grid operator by reducing the total system imbalance. Nevertheless, this statement
was not examined in all consequences and the implementation of passive balancing
could lead to several situations that might jeopardize the stability of the grid. For
example, if several market players simultaneously decide to deviate in the opposite
direction of the system imbalance, they might overcompensate the system and thus
create a new imbalance. Another potential hazard appears if the signal given is
incorrect and there is room for the market players to not comply with their balancing
obligations.
Appendix A. Forecasting Using ARIMA
Models
ARIMA is a forecasting methodology based in time series models. A time series is a set
of values observed sequentially through time. ARIMA models consist of three different
parts: Autoregressive (AR), integration (I), and moving average part (MA)35.
The autoregressive part assumes that a time series can be described as a combination
of some previous observed values, plus a random error term [119] as shown in
Equation (A-1):
É- = Ê É- + Êi É-i +…+Ê4 É-4 + Ë- + 9 (A-1)
Where the parameters Ê- are the coefficients of the autoregressive polynomial, Ë- is

the error term and Ì is the maximum lagged value or the order of the polynomial. On
the other hand, the moving average part assumes that the time series can be
expressed as being dependent on the previous estimation error terms plus white noise
error [119] this is expressed in Equation (A-2):
É- = Ë- + Í Ë- +Íi Ë-i +…+Íy Ë-y + 9 (A-2)
In this equation Í- are the coefficients of the moving average polynomial and Î is the
order of this polynomial. Combining the AR and MA models the basic ARMA model is
obtained as shown in Equation (A-3):
É- = Ê É- +…+Ê4 É-4 + Ë- + Í Ë- +…+Íy Ë-y (A-3)
This expression is generalized in Equation (A-4):
4 y
Ï1 − Ê( Ð( Ñ É- = 9 + Ï1 − ÍÒ Ð Ò Ñ Ë-
(A-4)
(k Òk
35
Not all the ARIMA parts are necessary to represent a specific time series.
133
134 Beknopte samenvatting
The operator B is called Backshift operator. It expresses the length of previous data
needed by the model to provide forecast (e.g., B1yt=yt-1, B2yt=yt-2 and so on). The
integrative part of the ARIMA implies taking the differences between successive
observations (see Section A.1.1.1 for further explanation). It can be mathematically
expressed as (A-5):
Δ {- = ^1 − Ð_ É- (A-5)
In this equation ? indicates the amount of times the time series has to be
differentiated. The complete ARIMA Expression is given in Equation (A-6):
4 y
Ï1 − Ê( Ð Ñ ^1 − Ð_ É- = 9 + Ï1 − ÍÒ Ð Ò Ñ 3-
(A-6)
(
(k Òk
A.1 Box Jenkins Procedure

The procedure for forecasting a time series using an ARIMA model or Box Jenkins
procedure is depicted in Figure 42. It consists of four different steps [120]:
Step 1 Model identification
Step 2 Estimation of the parameters of the model
Step 3 Model validation
Step 4 Forecasting/scenario generation
The following sections give a description of each of the Box Jenkins procedure steps.
Beknopte samenvatting 135
Figure 42: Box Jenkins procedure to build an ARIMA model. It consists of four different steps
identification, estimation, validation and forecast.
A.1.1 Model Identification

The objective of the model identification is to find the order of the autoregressive and
moving average polynomials as well as, the order of the differentiating term. In other
words, to define the values of ′Ì′, ′Î′ and ‘?′ in Equation (A-6).
The model identification technique used in this PhD thesis is based on a graphical
evaluation of the autocorrelation and partial autocorrelation functions. This step aims
at identifying three main characteristics of the time series: stationarity, seasonality and
the order of the AR and MA polynomial.
A.1.1.1 Stationarity
In order to apply ARIMA models it is required that the described series is stationary.
Stationarity condition implies that both the mean and the variance are constant over
the time. The Box-Cox transformations recommend two methods to make a series
stationary [120]:
The variance can be make stationary by applying logarithms.

Differencing a time series can make the mean stationary.
The amount of differentiation needed to stationarize a time series determines the value
of ‘?′ (see Equation (A-6)). This value is obtained by iterative differentiating the time
series until stationary behavior is observed (In general no more than two
differentiations are necessary).
Figure 43 a) shows an example of the autocorrelation of a non-stationary series. A

non-stationary series is characterized by an autocorrelation plot with very slow decay.
Figure 43 b) shows the same time series after a first differentiation is applied, the ACF
looks more stable i.e. the lags decrease faster. In conclusion, in this case the
stationarity is obtained after a first differentiation consequently, the order of ‘?′ is 1.
1 1
0.8 0.8
0.6 0.6
0.4 0.4
ACF
ACF
0.2 0.2
0 0
-0.2 -0.2
-0.4 -0.4
0 5 10 15 20 0 5 10 15 20
Lag Lag
a) b)
Figure 43: non-stationary time series with slow decay (a) and same series after first
differentiation (b) stationary is achieved after applying a first differentiation.
A.1.1.2 Seasonality
The next step in the identification process is to check for seasonality. Seasonal
variation is defined as the predictable movement of a time series around the trend line
that occurs at regular seasonal intervals. Typical examples of series that exhibit
seasonal behavior are the electricity prices, the heat demand among others.
Seasonal ARIMA (SARIMA) models are an extension of ARIMA models that are able to
handle with seasonal time series. The general expression of a SARIMA model is
described in Equation (A-7):
4 y
Ï1 − Ê( Ð ( Ñ »1 − Φ( Ð ( À ^1 − Ð_ ^1 − Ð _ É- = 9 + Ï1 − ÍÒ Ð Ò Ñ Ï1 − ΘÒ Ð Ò Ñ 3-
(A-7)
(k (k Òk Òk
Where P is the order of the seasonal AR component and Φj the coefficients of the
seasonal AR polynomial. Q gives the order of the seasonal MA polynomial which
coefficients are denoted by Θj. Finally the seasonal differentiation order is D. In the
case of SARIMA the difference operator is modified to include the seasonal components
of period S, by introducing the lag-s difference operator [121]. This is shown in

Equation (A-8):
Ö\É- = É- − É-, = ^1 − Ð , _É- (A-8)
Autocorrelation plots are used to determine if a time series presents seasonal patterns.
The ACF of a time series with cyclical behavior presents significant autocorrelation at
lags that are multiples of the period. An example of this is shown in Figure 44. This
time series displays significant lags with a periodicity of 24.
Figure 44: ACF of a time series that exhibits seasonal behavior. In this case significant lags
appear with a period of 24.
A.1.1.3 Order Identification

After identifying stationarity and seasonality the next step is to find the appropriated
order for the AR and MA polynomials. This task is performed inspecting the ACF and
PACF graphs. In general identifying the adequate ARMA model is a trial and error
procedure. Nevertheless a group of five common patterns can be used as indication to
approximate several time series [122]:
ARIMA (1,0,0) also known as the “AR signature” in this pattern the ACF decays
exponentially and the PACF displays a spike at lag one and no significant correlation
for the other lags.
ARIMA (2,0,0) in this case the ACF of the differenced series present a sine wave shape
pattern or a set of exponential decays. The PACF present a sharp cutoff after the
second lag.
ARIMA (0,0,1) this pattern is also known as the “MA signature” The characteristics of
this pattern is an ACF that cuts off sharply at lag 1 and a slow decay in the PACF.
ARIMA (0,0,2) in this pattern the ACF shows spikes at lags 1 and 2. The PACF exhibits
a sine-wave shape.
ARIMA (1,0,1) this pattern exhibits exponential decays in both the ACF and PACF.
These rules are summarized in Table 33:

Table 33: Typical ACF and PACF of the most common ARIMA models once the series is
stationary.
ACF PACF
ARIMA (1,0,0) Exponential decay Single significant peak at lag 1
ARIMA (2,0,0) Sinosoidal decline Significant peak at lags 1 and 2
ARIMA (0,0,1) Significant negative peak at Negative exponential decay

lag 1
ARIMA (0,0,2) Single significant negative Sinosoidal decline

peaks at lags 1 and 2
ARIMA (1,0,1) Exponential decay Negative exponential decay

A.1.2 Estimation
After identifying the order of the polynomial (i.e., the values of p, d, q) it is necessary
to calculate the parameters Ê ,…,Ê4 , Í ,…, Íy (See Equation (A-6)). There are several
methods for estimating these parameters. The general procedure uses an optimization
function that maximizes the probability of obtaining the observed data [122]. In
practice, several computer programs can be used to estimate this parameters. In the
case of this PhD thesis, the Matlab function “arima” was used to obtain the parameters
of the forecasted variables.
A.1.3 Model Verification

The verification process tests if the selected ARIMA is appropriated to represent the
studied time series. A common way to check the model is to evaluate the residuals
(i.e., the difference between the original time series and the estimated model). A good
model should produce statistically independent residuals or white noise. This can be
evaluated looking at the ACF of the residuals [120]. The typical ACF of white noise do
not present significant values. Figure 46 illustrates the ACF of white noise.
0.8
0.6
0.4
ACF
0.2
-0.2
-0.4
0 5 10 15 20
Lag
Figure 45: Typical ACF of white noise, in this kind of series no significant lag is present
If the selected ARIMA model is adequate, it can be used for forecasting. Otherwise if
the ACF of the residuals has significant lags a new model should be selected. This
process is repeated until the resulting residuals correspond to white noise. If two
models give the same results it is advisable to choose the one that has less AR and
MA terms.
Appendix B. Scenario Generation and
Reduction Techniques
B.1 Scenario Generation

The scenario generation technique used in this work is described in detail in [111],
[123] and [112]. It is based in the inverse transform sampling method. This method
is extensively used in statistics to generate random numbers from a particular
continuous or discrete probability distribution function.
Before starting with the generation technique, it is necessary to gather historical data
of previous forecast and measurements of the studied variable, as well as the
prognoses for the studied time horizon (e.g., next day).
The first step consists in dividing the historical forecast data in equidistant power levels
as shown in Figure 46. Afterwards, the corresponding historical measurements are
allocated to the same bin as the forecast. For example in the figure the first couple of
points (measurement and forecast) belongs to the second power level.
Figure 46: the first step in the scenario generation technique requires to divide the forecast in
power levels and associate the actual measurement to the corresponding power level.
141
The next step is to estimate the empirical cumulative distribution function (ECDF) of
the measured data within each power level. The ECDF approximates the distribution
of the error for each power interval.
To further clarify, in this work the procedure to obtain the renewables scenarios started
by gathering the data of the expected RES generation for the next day and historical
forecasts and measurements.
In this example the forecast is split into 18 power levels, the corresponding
measurements are assigned to each level. Within each power level the ECDF is
estimated. To estimate the ECDF, a histogram is generated; in this specific case the
histogram has 45 bins. The ECDF is calculated as the cumulative sum of the histogram
bins. This procedure is illustrated for the 7 power levels in Figure 47.
a) b)
Figure 47: Histogram of the measured data in power level 7 and corresponding empirical
cumulative distribution function.
The idea behind the inverse transform method is to generate random numbers that
follow a particular distribution, starting from a normal uniformly distributed random
sample. For instance in this particular case the aim is to generate random numbers
that follow the distribution of the RES forecast error on each power level.
The method starts by generating normal uniformly distributed random variables. A

total of ‘d’ realizations of normal vectors ′×′ are generated, where ‘d’ is the desired
number of scenarios to be generated and ′×′ is defined in Equation (B-1):
× = ^Ø , Ø , … , ØÙ )R (B-1)
In this equation Ú corresponds to the time horizon. The vector × follows a multivariate
normal distribution as expressed in Equation (B-2):
×~V(Ü8 , Σ) (B-2)
Where Ü8 is a vector of zeros and Σ is a covariance matrix as shown in Equation (B-3):
ß, ß,i . . ß,Ù

ßi, ßi,i . . ßi,Ù
Σ`Þ : : á
(B-3)
: ⋱
ßÙ, ßÙ,i . . ßÙ,Ù
With
ßF,O ` 9D(×F , ×O , ), [, U ` 1,2, … , Ú (B-4)
The covariance (Equation (B-4)) represents the interdependence structure of the

forecast errors over the lead time. It is estimated using the exponential function shown
in Equation (B-5):
|[ g U|
ßF,O ` 9D(×F , ×O ) ` CtÌ ¤g ¦, 0 ≤ [, U≤Ú
Ë
(B-5)
In this equation Ë controls the strength of correlation. Figure 48 illustrates the

covariance matrix Σ used in this work; the time horizon is one day with 15 minutes
time step. The selected Ë for this case is equal to 50.
1
90
0.9
80
0.8
70
0.7
60
horizon [15 min]
50 0.6
40 0.5
30 0.4
20
0.3
10
0.2
20 40 60 80
horizon [15 min]
Figure 48: Visualization of the covariance matrix. The diagonal elements are equal to zero.
Once the normal random numbers are generated it is possible to transform them to
follow the desired distribution. The inverse transform method is mathematically
defined in Equations (B-6) and (B-7):
çK
1
Φ(×- ) ` ã C i ?t
P åæ
è √2/
(B-6)
o- ` - dΦ(×- )h (B-7)
Where - stands for the inverse of the cumulative distribution function (CDF) at time
step t and Φ(×- ) is the CDF of the random variable ×- .
An example of the application of the inverse transform method is shown in Figure 49.
At certain hour the given forecast is equal to 0.3622 [p.u.]. This corresponds to the 7th
power level. The distribution of the error for this level interval is shown in the left part
of Figure 49. The right panel corresponds the CDF of the normal random variable. For
probability for this value is Φ(×- ) ` 0.964. According to the inverse transform method:
the analyzed hour and scenario, the random variable equals to 1.8, the resulting
o- ` - (0.964) (B-8)

o- ` 0.12 Ì. { (B-9)
The resulting error of this scenario is 0.12 [p.u.]. This procedure is repeated until the
desired number of scenarios is obtained. Note that though the examples in this annex
focus on the generation of wind forecast errors scenarios. The same methodology is
applied to generate the scenario for the day-ahead and imbalance prices.
Figure 49: Inverse transform method. Starting from a standard normal random value of 1.8, the
resulting error is 0.12 in the power level 7th.
B.2 Scenario Reduction Technique

In order to explicitly represent uncertainty in a decision process, large number of
scenarios are usually required. Nevertheless, due to computational burdens large
numbers of scenarios can make the problem intractable (i.e., no solution can be
found). For this reason a scenario reduction technique is needed to trim the number
of scenarios. A good scenario reduction technique retains the most important
information that characterizes the stochastic process.
The scenario reduction technique applied in this work is described in [106]. It is based
on the ‘probability distance’ concept. The probability distance helps to quantify the
closeness between two different scenarios that represent the same stochastic process.
In the present work the ‘Kantorovich distance’ is used to choose a set of reduced
scenarios that is close enough to the original set. This problem is known as the
Monge-Kantorovich mass transportation problem and is defined in Equations (B-10)
and (B-11):
í õ
UZ[ ë ë
(B-10)
EÚ^!, !′_ ` î^Y, Y _ &^Y, Y _

ï ï
& ì ô
ë¹¹ ∈ ñ ë
ê ∈ ñ ó
ò

&^Y, Yï _ ≥ 0, ∀Y ∈ Ω, ∀Y′ ∈ Ω, ,

Subject to &^Y, Yï _ ` .¹ , ∀Y ∈ Ω, (B-11)
¹ò ∈ Ω

&^Y, Yï _ = ¹ï , ∀Y′ ∈ Ω,
¹∈Ω
In Equation (B-11) λ and correspond to the probabilities of scenarios Y and Yï in the

original scenario set Ω and in the selected set of scenarios Ω\, respectively. For a two
stage stochastic programming, the Kantorovich distance can be expressed as given in
Equation (B-12):
EÚ^!, !′_ ` /¹ min ^‖É^Y_ − É^Yï _‖_ (B-12)

¹ ∈ ñ
ò
¹ ∈ ñ/ñ

The scenario reduction algorithm is an iterative method. The following section gives
an example of the scenario reduction technique.
B.2.1 Example of the Scenario Reduction technique

Suppose that the imbalance price for certain day can be represented by a set of 4
scenarios depicted in Table 34:
Table 34: Imbalance price scenarios and corresponding probability of occurrence.
1 2 3 4
É^Y_ [€/¬þℎ] 50 45 85 100
.¹ 0.25 0.20 0.40 0.15
The kantorovich distance is used to reduce the total number of scenarios to two. The
procedure to obtain the reduced set of scenarios is described as follows:
Step 0: The process initializes estimating the cost function î^Y, Yï _ = ‖É^Y_ − É^Yï _‖,
∀Y, Yï ∈ Ω, where Ω = u1,2,3,4v. The resulting values of î are shown in Equation
(B-13):
0 5 35 50
5 0 40 55
î= €/¬þℎ
(B-13)
35 40 0 15
50 55 15 0
Step 1: In this step the iterative process starts. The aim is to select the first scenario.
This scenario can be interpreted as the most equidistant from all scenarios. Thus, the
chosen scenario is the one that minimizes the resulting Kantorovich distance:
? = .i D^1,2_ + .È D^1,3_ + . D^1,4_ = 22.5 (B-14)

?i = . D^2,1_ + .È D^2,3_ + . D^2,4_ = 25.0
?È = . D^3,1_ + .i D^3,2_ + . D^3,4_ = 19.0
? = . D^4,1_ + .i D^4,2_ + .È D^4,3_ = 29.5
In this case the minimum distance is obtained in scenario number 3. Thus this is the
first selected scenario:
Ω, = u3v,
[]

(B-15)
Ω = u1,2,4v
[]

In this equation Ω represents the set of scenarios that has not been selected and Ω ,
correspond to the set of selected scenarios.
Step i: Once the first scenario is selected the cost matrix can be updated by using
the formula shown in (B-16).
î |(| ^Y, Yï _ = minî ( ^Y, Yï _, î ( ^Y, Yï ( _∀ω, ω′ ∈ Ω( (B-16)
The updated matrix keeps the original columns and rows of the selected scenario. The
remaining elements are replaced by the minimum between the original value and the
value of the selected scenario in the same row.
Applying Equation (B-16) to the given example:
î |i| ^1,2_ = minuD^1,2_, D^1,3_v = 5 (B-17)

î |i| ^1,4_ = minuD^1,4_, D^1,3_v = 35
î |i| ^2,1_ = minuD^2,1_, D^2,3_v = 5
î |i| ^2,4_ = minuD^2,4_, D^2,3_v = 40
î |i| ^4,1_ = minuD^4,1_, D^4,3_v = 15
î |i| ^4,2_ = minuD^4,2_, D^4,3_v = 15
Hence, the resulting cost matrix is:
0 5 35 35
5 0 40 40
î = €/¬þℎ
(B-18)
|i|
35 40 0 15
15 15 15 0
Once again the Kantorovich distance is calculated using the updated cost matrix î |i|
? |i| = /i î |i| ^2,1_ + / î |i| ^4,1_ = 3.25 (B-19)
? |i|
i
= / î |i| ^1,2_ + / î |i| ^4,2_ = 3.5
? |i|

= / î |i| ^1,4_ + /i î |i| ^2,4_ = 16.75
It can be seen that scenario 2 has the lowest Kantorovich distance Therefore:
Ω, = Ω∗, = u3,1v,
i
(B-20)
Ω = Ω∗ = u2,4v,

Step Ω, + : Once the desired amount of scenarios is reached, the probabilities
should be distributed among the selected scenarios. This is done by adding the
probability of the scenarios that has not been selected to that of the closest selected
ones. This process is mathematically described in Equation (B-21):
/¹
∗ / + /ï
k ¹ ¹
(B-21)
¹ò
^¹_
original matrix Ω∗ D^2,1_ = 5 whereas D^2,3_ = 40. On the other hand, scenario 3 is
Applying this to the illustrative example: Scenario 1 is closer to scenario 2 since in the
closer to scenario 4 since in Ω∗ ^D^4,1_ = 50 whereas D^4,3_ = 15_, consequently:
/∗ = / + /i = 0.45
/È∗ = /È + / = 0.55
(B-22)
As a result, the required number of scenarios with their corresponding probabilities are
obtained.
References
[1] T. Ackermann, G. Andersson, and L. Söder, “Distributed generation: a
definition,” Electric Power Systems Research, vol. 57, no. 3, pp. 195–204, Apr.
2001.
[2] G. Pepermans, J. Driesen, D. Haeseldonckx, R. Belmans, and W. D’haeseleer,

“Distributed generation: definition, benefits and issues,” Energy Policy, vol. 33,
no. 6, pp. 787–798, Apr. 2005.
[3] ENTSO-E, “Electricity in Europe 2013,”

https://www.entsoe.eu/Documents/Publications/Statistics/2013_ENTSO-
E_Electricity%20in%20Europe.pdf, 2014.
[4] NERC North American Electric Reliability Corporation, “Accommodating high

levels of variable generation to ensure the reliability of the bulk power
system.,” Special report., p. 104.
[5] H. Holttinen, P. Meibom, A. Orths, F. Van Hulle, and B. Lange, “Design and
Operation of Power Systems with Large Amounts of Wind Power, Final Report
Phase One 2006-08.,” VTT Technical Research Centre of Finland on behalf of
IEA Wind Task 25., 2009.
[6] W. Kling, L. Söder, and I. Erlich, et al., “Wind power grid integration: The
European experience,” Power Systems Computation Conference (PSCC),
Stockholm, Sweden, August 22-26, 2011.
[7] T. Ackermann and R. Kuwahata, “Lessons learned from international wind

integration studies,” Aemo wind integration WP4 (A) on behalf of
Energynautics GmbH. Langen, Germany., 109AD.
[8] I. . Pérez-Arriaga and C. Batlle, “Impacts of Intermittent Renewables on

Electricity Generation System Operation,” Economics of Energy &
Environmental Policy, vol. 1, no. 2, 2012.
[9] K. De Vos, “Sizing and allocation of operating reserves following wind power
integration,” PhD Thesis. University of Leuven, Department of Electrical
Engineering., 2013.
151
152 References
[10] M. Milligan, B. Kirby, T. Acker, M. Ahlstrom, B. Frew, and M. Gogging, “Review

and Status of Wind Integration and Transmission in the United States: Key
Issues and Lessons Learned,” National Renewable Energy Laboratory
<http://www.nrel.gov/docs/fy15osti/61911.pdf>, 2015.
[11] International Energy Agency Demand-Side Management program,

“Integration of Demand Side Management, Distributed Generation, Renewable
Energy Sources and Energy Storages,”
http://www.ieadsm.org/Files/Tasks/Task%2017%20-
%20Integration%20of%20Demand%20Side%20Management,%20Energy%
20Efficiency,%20Distributed%20Generation%20and%20Renewable%20Ener
gy%20Sources/Final%20reports/Synthesis%20Report%20Final.pdf, vol. 1.
[12] EURELECTRIC, “Flexible generation: Backing up renewables,”

http://www.eurelectric.org/media/61388/flexibility_report_final-2011-102-
0003-01-e.pdf, 2011.
[13] Linear, “Linear Intelligent Networks,” http://www.linear-smartgrid.be/en.
[14] L. I. Dulau, M. Abrudean, and D. Bica, “Distributed generation and virtual

power plants,” Power Engineering Conference (UPEC), 2014 49th International
Universities. pp. 1–5, 2014.
[15] K. E. Bakari and W. L. Kling, “Virtual power plants: An answer to increasing

distributed generation,” Innovative Smart Grid Technologies Conference
Europe (ISGT Europe), 2010 IEEE PES. pp. 1–6, 2010.
[16] E. Mashhour and S. M. Moghaddas-Tafreshi, “The opportunities for future

virtual power plant in the power market, a view point,” Clean Electrical Power,
2009 International Conference on. pp. 448–452, 2009.
[17] D. Pudjianto, C. Ramsay, and G. Strbac, “Virtual power plant and system
integration of distributed energy resources,” Renewable Power Generation,
IET, vol. 1, no. 1. pp. 10–16, 2007.
[18] C. Kieny, B. Berseneff, N. Hadjsaid, Y. Besanger, and J. Maire, “On the concept
and the interest of virtual power plant: Some results from the European project
Fenix,” Power & Energy Society General Meeting, 2009. PES ’09. IEEE. pp. 1–
6, 2009.
[19] H. Saboori, M. Mohammadi, and R. Taghe, “Virtual Power Plant (VPP),

Definition, Concept, Components and Types,” in 2011 Asia-Pacific Power and
Energy Engineering Conference, 2011, pp. 1–4.
References 153
[20] P. Asmus, “Microgrids, Virtual Power Plants and Our Distributed Energy
Future,” The Electricity Journal, vol. 23, no. 10, pp. 72–82, Dec. 2010.
[21] D. Pudjianto, C. Ramsay, and G. Strbac, “Microgrids and virtual power plants:
Concepts to support the integration of distributed energy resources,”
Proceedings of the Institution of Mechanical Engineers, Part A: Journal of
Power and Energy , vol. 222 , no. 7 , pp. 731–741, Nov. 2008.
[22] B. Bernd M and S. Zbigniew, “Smart Grids—Fundamentals and Technologies

in Electricity Networks,” Springer, p. 396, 2014.
[23] M. Braun, “Virtual Power Plants in Real Applications Pilot Demonstrations in

Spain and England as part of the European project FENIX,” Institut für Solare
Energieversorgungstechnik (ISET)
<http://www.energiesystemtechnik.iwes.fraunhofer.de/de/presse-
infothek/publikationen/uebersicht/2009/virtual_power_plantsinrealapplication
s-pilotdemonstrationsinspai.html>, 2009.
[24] KU Leuven Energy Institute, “EI Fact sheet: Security of Electric Power Supply,”
https://www.mech.kuleuven.be/en/tme/research/energy_environment, 2013.
[25] Elia, “Evolution of ancillary services needs to balance the Belgian control area
towards 2018,” www.elia.be, 2013.
[26] KU Leuven Energy Institute, “EI Fact sheet: The current electricity market
design in Europe,”
https://www.mech.kuleuven.be/en/tme/research/energy_environment, 2015.
[27] J. Frunt, “Analysis of Balancing Requirements in Future Sustainable and

Reliable Power Systems- Phd Thesis,” Technische Universiteit Eindhoven,
2011.
[28] “BELPEX Belgian Power Exchange,” http://www.belpex.be/, 2014.
[29] “The florence school of regulation encyclopedia,” http://fsr-

encyclopedia.eui.eu/electricity-wholesale-market/, 2014. .
[30] L. Vandezande, “Design and integration of balancing markets in Europe,” PhD

Thesis. University of Leuven, Department of Electrical Engineering., 2011.
[31] ENTSO-E, “Go-live of NWE Project a Major Step towards an Integrated

European Electricity Market,” https://www.entsoe.eu/news-
events/announcements/announcements-archive/Pages/News/Go-live-of-
154 References
NWE-Project-a-Major-Step-towards-an-Integrated-European-Electricity-
Market.aspx, 2014.
[32] Elia, “Secondary reserves,” http://www.elia.be/en/grid-

data/balancing/~/media/files/Elia/Grid-
data/Balancing/Secondary_reserves.pdf, 2014.
[33] “Elia,” www.elia.be, 2014. .
[34] Elia, “Imbalance tariffs: compensation tariffs as an incentive for ARPs to

maintain balance in their balancing perimeter,”
http://www.elia.be/~/media/files/Elia/Products-and-
services/ProductSheets/E-Evenwicht/E2_En_Imbalance-tariffs.pdf, 2014.
[35] D. Wang, S. Parkinson, W. Miao, H. Jia, C. Crawford, and N. Djilali, “Online

voltage security assessment considering comfort-constrained demand
response control of distributed heat pump systems,” Applied Energy, vol. 96,
pp. 104–114, Aug. 2012.
[36] D. Wang, S. Parkinson, W. Miao, H. Jia, C. Crawford, and N. Djilali,

“Hierarchical market integration of responsive loads as spinning reserve,”
Applied Energy, vol. 104, pp. 229–238, Apr. 2013.
[37] S. Weckx, R. D’hulst, and J. Driesen, “Primary and Secondary Frequency

Support by a Multi-Agent Demand Control System,” Power Systems, IEEE
Transactions on, vol. PP, no. 99. pp. 1–11, 2014.
[38] C. S. Ioakimidis and L. J. Oliveira, “Use of the energy box acting as an ancillary
service,” Energy Market (EEM), 2011 8th International Conference on the
European. pp. 574–579, 2011.
[39] S. Ruthe, C. Rehtanz, and S. Lehnhoff, “Towards frequency control with large
scale Virtual Power Plants,” Innovative Smart Grid Technologies (ISGT
Europe), 2012 3rd IEEE PES International Conference and Exhibition on. pp.
1–6, 2012.
[40] A. Molina-Garcia, I. Munoz-Benavente, A. D. Hansen, and E. Gomez-Lazaro,

“Demand-Side Contribution to Primary Frequency Control With Wind Farm
Auxiliary Control,” Power Systems, IEEE Transactions on, vol. 29, no. 5. pp.
2391–2399, 2014.
[41] B. Biegel, M. Westenholz, L. H. Hansen, J. Stoustrup, P. Andersen, and S.

Harbo, “Integration of flexible consumers in the ancillary service markets,”
Energy, vol. 67, pp. 479–489, Apr. 2014.
References 155
[42] E. Koliou, C. Eid, J. P. Chaves-Ávila, and R. A. Hakvoort, “Demand response in

liberalized electricity markets: Analysis of aggregated load participation in the
German balancing mechanism,” Energy, vol. 71, pp. 245–254, Jul. 2014.
[43] P. Van Dievel, K. De Vos, R. Belmans, and K. De Vos, “Demand response in

electricity distribution grids: Regulatory framework and barriers,” European
Energy Market (EEM), 2014 11th International Conference on the. pp. 1–5,
2014.
[44] S. Vandael, “Aggregate and Dispatch Control of Grid-integrated Electric

Vehicles,” PhD Thesis. University of Leuven. Department of Electrical
Engineering., 2015.
[45] S.-L. Andersson, A. K. Elofsson, M. D. Galus, L. Göransson, S. Karlsson, F.

Johnsson, and G. Andersson, “Plug-in hybrid electric vehicles as regulating
power providers: Case studies of Sweden and Germany,” Energy Policy, vol.
38, no. 6, pp. 2751–2762, Jun. 2010.
[46] D. Dallinger, D. Krampe, and M. Wietschel, “Vehicle-to-Grid Regulation

Reserves Based on a Dynamic Simulation of Mobility Behavior,” Smart Grid,
IEEE Transactions on, vol. 2, no. 2. pp. 302–313, 2011.
[47] J. Druitt and W.-G. Früh, “Simulation of demand management and grid
balancing with electric vehicles,” Journal of Power Sources, vol. 216, pp. 104–
116, Oct. 2012.
[48] J. Jargstorf and M. Wickert, “Offer of secondary reserve with a pool of electric
vehicles on the German market,” Energy Policy, vol. 62, pp. 185–195, Nov.
2013.
[49] E. Mashhour and S. M. Moghaddas-Tafreshi, “Bidding Strategy of Virtual Power

Plant for Participating in Energy and Spinning Reserve Markets Part I: Problem
Formulation,” Power Systems, IEEE Transactions on, vol. 26, no. 2. pp. 949–
956, 2011.
[50] E. Mashhour and S. M. Moghaddas-Tafreshi, “Bidding Strategy of Virtual Power

Plant for Participating in Energy and Spinning Reserve Markets Part II:
Numerical Analysis,” Power Systems, IEEE Transactions on, vol. 26, no. 2. pp.
957–964, 2011.
[51] A. Niese, S. Lehnhoff, M. Troschel, M. Uslar, C. Wissing, H. Appelrath, and M.

Sonnenschein, “Market-based self-organized provision of active power and
ancillary services: An agent-based approach for Smart Distribution Grids,”
Complexity in Engineering (COMPENG), 2012. pp. 1–5, 2012.
156 References
[52] A. K. Varkani, A. Daraeepour, and H. Monsef, “A new self-scheduling strategy

for integrated operation of wind and pumped-storage power plants in power
markets,” Applied Energy, vol. 88, no. 12, pp. 5002–5012, Dec. 2011.
[53] S. Von Roon, T. Mezger, and W. Mauch, “The potential from micro-CHP to
provide load-frequency control,” in Proceedings of the 1st International
Conference and Workshop on Micro-Cogeneration and Applications, 2008.
[54] M. Steck, “Development and assessment of different algorithms for dispatching

a virtual power plant,” PhD Thesis, Technischen Universität München, 2013.
[55] K. Kok, Z. Derzsi, M. Hommelberg, C. Warmer, R. Kamphuis, and H.

Akkermans, “Agent-Based Electricity Balancing with Distributed Energy
Resources, A Multiperspective Case Study,” Hawaii International Conference
on System Sciences, Proceedings of the 41st Annual. p. 173, 2008.
[56] F. W. Bliek, A. van den Noort, B. Roossien, R. Kamphuis, J. de Wit, J. van der
Velde, and M. Eijgelaar, “The role of natural gas in smart grids,” Journal of
Natural Gas Science and Engineering, vol. 3, pp. 608–616, Oct. 2011.
[57] J. M. Angarita and J. G. Usaola, “Combining hydro-generation and wind

energy,” Electric Power Systems Research, vol. 77, no. 5–6, pp. 393–400, Apr.
2007.
[58] M. Houwing, G. Papaefthymiou, P. W. Heijnen, and M. D. Iliü, “Balancing Wind

Power with Virtual Power Plants of Micro-CHPs,” Proceedings of the IEEE
PowerTech Conference, Bucharest, Romania, pp. 1–7, 2009.
[59] M. Houwing, “Smart Heat and Power: Utilizing the Flexibility of Micro
Cogeneration,” PhD Thesis, Delft University of Technology, 2010.
[60] C. Binding, D. Gantenbein, B. Jansen, O. Sundstrom, P. B. Andersen, F. Marra,

B. Poulsen, and C. Traeholt, “Electric vehicle fleet integration in the danish
EDISON project - A virtual power plant on the island of Bornholm,” Power and
Energy Society General Meeting, 2010 IEEE. pp. 1–8, 2010.
[61] J. Mohammadi, A. Rahimi-Kian, and M. S. Ghazizadeh, “Joint operation of wind

power and flexible load as virtual power plant,” Environment and Electrical
Engineering (EEEIC), 2011 10th International Conference on. pp. 1–4, 2011.
[62] M. T. Mekonnen, B. Dupont, K. De Vos, K. Kessels, and R. Belmans,

“Optimizing the use of flexible residential demand for balancing wind power,”
Innovative Smart Grid Technologies (ISGT Europe), 2012 3rd IEEE PES
International Conference and Exhibition on. pp. 1–8, 2012.
References 157
[63] K. Kessels, D. Six, M. T. Mekonnen, and B. Dupont, “Feasibility of employing

domestic active demand for balancing wind power generation,” European
Energy Market (EEM), 2013 10th International Conference on the. pp. 1–6,
2013.
[64] W. Leterme, F. Ruelens, B. Claessens, and R. Belmans, “A Flexible Stochastic

Optimization Method for Wind Power Balancing With PHEVs,” Smart Grid, IEEE
Transactions on, vol. 5, no. 3. pp. 1238–1245, 2014.
[65] R. Scharff, M. Amelin, and L. Söder, “Approaching wind power forecast

deviations with internal ex-ante self-balancing,” Energy, vol. 57, pp. 106–115,
Aug. 2013.
[66] K.-O. Vogstad, “Utilising the complementary characteristics of wind power and
hydropower through coordinated hydro production scheduling using the EMPS
model,” Nordic Wind Energy Conference (NWPC), 2000.
[67] H. Pandžić, J. M. Morales, A. J. Conejo, and I. Kuzle, “Offering model for a

virtual power plant based on stochastic programming,” Applied Energy, vol.
105, pp. 282–292, May 2013.
[68] L. Hirth and I. Ziegenhagen, “Balancing Power and Variable Renewables: A

Glimpse at German Data,” USAEE Working Paper No. 13-154. Available at
SSRN: http://ssrn.com/abstract=2371752, 2013.
[69] TenneT, “Imbalance managment TenneT Analysis report,”

http://www.tennettso.de/site/binaries/content/assets/transparency/publicatio
ns/tender-of-balancing-power/imbalance-management-tennet---analysis-
report.pdf, 2011.
[70] A. Abdisalaam, I. Lampropoulos, J. Frunt, G. P. J. Verbong, and W. L. Kling,

“Assessing the economic benefits of flexible residential load participation in the
Dutch day-ahead auction and balancing market,” European Energy Market
(EEM), 2012 9th International Conference on the. pp. 1–8, 2012.
[71] I. Lampropoulos, “Energy Management of Distributed Resources in Power

Systems Operations,” Phd Thesis. Eindhoven University of Technology.
http://repository.tue.nl/771935., 2014.
[72] J. P. Chaves-Ávila, R. A. Hakvoort, and A. Ramos, “Short-term strategies for

Dutch wind power producers to reduce imbalance costs,” Energy Policy, vol.
52, pp. 573–582, Jan. 2013.
158 References
[73] W. D’haeseleer, “AMPERE report,”

https://www.mech.kuleuven.be/en/tme/research/energy_environment/,
2000.
[74] Danish Energy Agency, “Technology Data for Energy Plants - Individual
Heating Plants and Energy Transport,” Online available
http://www.ens.dk/en/info/publications/technology-data-energy-plants-
individual-heating-plants-energy-transport, 2012.
[75] H. I. Onovwiona and V. I. Ugursal, Residential cogeneration systems: review

of the current technology, vol. 10, no. 5. 2006.
[76] C. Roselli, M. Sasso, S. Sibilio, and P. Tzscheutschler, “Experimental analysis

of microcogenerators based on different prime movers,” Energy and Buildings,
vol. 43, no. 4, pp. 796–804, Apr. 2011.
[77] District Heating and Cooling., “District Heating and Cooling: Environmental
Technology for the 21st Century,” http://www.iea-dhc.org/the-technology/for-
policy-makers.html, 2013.
[78] Irish CHP association, “A Guide to Combined Heat and Power in Ireland,”
http://www.seai.ie/Publications/Renewables_Publications_/CHP/Guide_to_CH
P_in_Ire_low_.pdf, 2014.
[79] WADE, “DE technologies - High-Efficiency Cogeneration,”

http://www.localpower.org/, 2015.
[80] V. Vares, “Cogeneration – opportunities for increasing energy efficiency,” Tallin

University of Technology
http://www.ttu.ee/public/s/Sustainable_Energetics/materials/Applications_of
_Materials/Cogeneration-2012.pdf.
[81] D. Haeseldonckx, L. Peeters, L. Helsen, and W. D’haeseleer, “The impact of

thermal storage on the operational behaviour of residential CHP facilities and
the overall CO2 emissions,” Renewable and Sustainable Energy Reviews, vol.
11, pp. 1227–1243, Aug. 2007.
[82] T. Couture, K. Cory, C. Kreycik, and E. Williams, “A Policymaker’s Guide to

Feed-in Tariff Policy Design,” NREL
http://www.nrel.gov/docs/fy10osti/44849.pdf, 2010.
[83] J. Vandewalle, N. Keyaerts, and W. Dhaeseleer, “The Role of Thermal Storage

and Natural Gas in a Smart Energy System,” in 9-th European Energy Markets
Conference (EEM12), pp. 1–9.
References 159
[84] K. Sommer and E. Mesenhöller, “Practical experience with a fuel cell unit for
Combined Heat and Power (CHP) generation on the building level,”
http://www.rehva.eu/publications-and-resources/hvac-
journal/2013/052013/practical-experience-with-a-fuel-cell-unit-for-combined-
heat-and-power-chp-generation-on-the-building-level/, 2013.
[85] A. Hawkes and M. Leach, “Cost-effective operating strategy for residential

micro-combined heat and power,” Energy, vol. 32, no. 5, pp. 711–723, May
2007.
[86] M. Pehnt and B. Praetorius, “Micro CHP – a sustainable innovation?,”

http://www.tips-project.org/DOWNLOAD/Graz_Innovation_Micro_CHP.pdf,
2004.
[87] A. Campos Celador, A. Erkoreka, K. Martin Escudero, and J. M. Sala, “Feasibility

of small-scale gas engine-based residential cogeneration in Spain,” Energy
Policy, vol. 39, no. 6, pp. 3813–3821, Jun. 2011.
[88] ENERDATA, “Energy efficiency buildings in the EU trends in buildings in the

EU. Lessons from the ODYSSEE MURE project.,” http://www.odyssee-
mure.eu/publications/br/energy-efficiency-in-buildings.html, 2012.
[89] Carbon Trust, “Micro-CHP Accelerator Final report,” March 2011. [Online].
Available: http://www.carbontrust.com/media/77260/ctc788_micro-
chp_accelerator.pdf.
[90] R. Donceel and J. Van Engeland, “Opportunities for micro-CHPs in the Belgian
balancing mechanism: imbalance reduction versus reserve power supply,”
Master thesis, University of Leuven (KU Leuven), 2013.
[91] F. Geth, J. Tant, and E. Haesen, “Integration of Energy Storage in Distribution

Grids,” IEEE Power and Energy Society General Meeting, no. 1, pp. 1–6, 2010.
[92] P. Bacher, H. Madsen, and H. A. Nielsen, “Online short-term solar power

forecasting,” Solar Energy, vol. 83, no. 10, pp. 1772–1783, 2009.
[93] H. T. C. Pedro and C. F. M. Coimbra, “Assessment of forecasting techniques

for solar power production with no exogenous inputs,” Solar Energy, vol. 86,
no. 7, pp. 2017–2028, 2012.
[94] F. Carlson, “Wind power forecast errors Future volumes and costs,”
www.elforsk.se, 2011.
160 References
[95] L. Ramirez-Elizondo, “Optimal Usage of Multiple Energy Carriers in Residential

Systems: Unit Scheduling and Power Control,” PhD Thesis, Delft University of
Technology, 2013.
[96] J. Zapata Riveros, J. Vandewalle, and W. Dhaeseleer, “Assessment of different

distributed generation technologies for a virtual power plant,” IAEE European
Energy Conference 2012, no. Venice, 2012.
[97] M. Zdrilic, H. Pandzic, and I. Kuzle, “The mixed-integer linear optimization

model of virtual power plant operation,” Energy Market (EEM), 2011 8th
International Conference on the European. pp. 467–471, 2011.
[98] R. D’hulst, K. Kessels, and D. Six, “Business case assessment of balancing large
scale PV with flexible CHP,” Energy Market (EEM), 2011 8th International
Conference on the European. pp. 288–293, 2011.
[99] Brussels Instituut voor Milieubeheer, “http://www.ibgebim.be/index.htm.”
[100] COGEN-Vlaanderen, “http://www.cogenvlaanderen.be.”
[101] Commission wallonne pour L’Energie, “http://www.cwape.be/?dir=0&lg=1.”
[102] M. Steck, “Simulation to quantify the revenues of linked chp-devices providing

balance power under realistic conditions,” Microgen II conference, Glasgow,
Scotland, 2010.
[103] Lampiris, “http://www.lampiris.be/nl/gas-parameters-nl.”
[104] D. Möst and D. Keles, “A survey of stochastic modelling approaches for

liberalised electricity markets,” European Journal of Operational Research, vol.
207, no. 2, pp. 543–556, Dec. 2010.
[105] Neos, “Stochastic Linear Programming,” http://neos-

guide.org/content/stochastic-linear-programming, 2015.
[106] A. J. Conejo, M. Carrión, and J. M. Morales, “Decision Making Under

Uncertainty in Electricity Markets,” in International Series in Operations
Research & Management Science, vol. 153, Boston, MA: Springer US, 2010.
[107] Stad Leuven Directie Data- en Facilitair Beheer, “Internal Document,” 2013.
[108] P. Woods, O. Riley, J. Overgaard, E. Vrins, K. Sipil, R. Stobart, and A. Cooke,

“A Comparison of distributed CHP/DH with large-scale CHP/DH,” IEA District
Heating and Cooling Project Annex VII.
References 161
[109] Synergrid, “Statistieken en gegevens - Synthetic Load Pro les,”

http://www.synergrid.be/index.cfm?PageID=16896.
[110] P. Pinson, H. A. Nielsen, J. K. Møller, H. Madsen, and G. N. Kariniotakis, “Non-

parametric probabilistic forecasts of wind power: required properties and
evaluation,” Wind Energy, vol. 10, no. 6, pp. 497–516, Nov. 2007.
[111] X.-Y. Ma, Y.-Z. Sun, and H.-L. Fang, “Scenario Generation of Wind Power
Based on Statistical Uncertainty and Variability,” Sustainable Energy, IEEE
[112] K. Bruninx, E. Delarue, and W. D’haeseleer, “A practical approach on scenario

generation & reduction algorithms based on probability distance measures --
the case of wind power forecast errors,” working paper
https://www.mech.kuleuven.be/en/tme/research/energy_environment/Pdf/w
p2014-15b.pdf, 2014.
[113] S.-E. Fleten and E. Pettersen, “Constructing bidding curves for a price-taking
retailer in the norwegian electricity market,” Power Systems, IEEE
[114] Y. Vardanyan, L. Soder, and M. Amelin, “Hydropower Bidding Strategies to

Day-Ahead and Real-Time Markets: Different Approaches,” Database and
Expert Systems Applications (DEXA), 2013 24th International Workshop on.
pp. 209–213, 2013.
[115] H. M. I. Pousinho, V. M. F. Mendes, and J. P. S. Catalão, “A risk-averse

optimization model for trading wind energy in a market environment under
uncertainty,” Energy, vol. 36, no. 8, pp. 4935–4942, Aug. 2011.
[116] J. Matevosyan and L. Soder, “Minimization of imbalance cost trading wind

power on the short-term power market,” Power Systems, IEEE Transactions
on, vol. 21, no. 3. pp. 1396–1404, 2006.
[117] J. M. Morales, A. J. Conejo, and J. Perez-Ruiz, “Short-Term Trading for a Wind

Power Producer,” Power Systems, IEEE Transactions on, vol. 25, no. 1. pp.
554–564, 2010.
[118] J. Garcia-Gonzalez, R. M. R. de la Muela, L. M. Santos, and A. M. Gonzalez,

“Stochastic Joint Optimization of Wind Generation and Pumped-Storage Units
in an Electricity Market,” Power Systems, IEEE Transactions on, vol. 23, no. 2.
pp. 460–468, 2008.
162 References
[119] Office for national statisics, “From Holt-Winters to ARIMA Modelling: Measuring
the Impact on Forecasting Errors for Components of Quarterly Estimates of
Public Service Output,” http://manualsus.com/post/wOS/from-holt-winters-to-
arima-modelling-measuring-the-impact-on-, 2008.
[120] R. Espínola, “Predicción a corto plazo de los precios de la energía eléctrica,”

Universidad de Castilla- La Mancha, 2004.
[121] J. M. Morales, “Impact on system economics and security of high penetration

of wind power (Doctoral Thesis),” Universidad de Castilla- La Mancha, 2010.
[122] Statsoft, “How To Identify Patterns in Time Series Data: Time Series
AnalysisNo Title,” http://www.statsoft.com/Textbook/Time-Series-Analysis,
2014.
[123] P. Pinson, G. Papaefthymiou, B. Klockl, and H. A. Nielsen, “Generation of

Statistical Scenarios of Short-term Wind Power Production,” Power Tech, 2007
IEEE Lausanne. pp. 491–496, 2007.
[124] J. Vandewalle, “Natural gas in the energy transition Technical challenges and
opportunities of natural gas and its infrastructure as a flexibility-providing
resource,” PhD Thesis. KU Leuven, 2014.
[125] Elia, “Elia Facts & Figures 2013,”

http://www.elia.be/~/media/files/Elia/publications-2/facts-and-
figures/FactsandFigures_EN_2013_LR.pdf, 2013.
List of Publications
Articles International Journals with Review
a. Accepted
• Zapata Riveros, J., Donceel, R., Van Engeland, J. and D’haeseleer, W. (2015).
A new approach for near real-time micro-CHP management in the context of
power system imbalances – A case study. Energy Conversion and Management
89, 270–280.
• Zapata Riveros, J., Vandewalle, J., and D’haeseleer, W. (2013). “A comparative

study of imbalance reduction strategies for virtual power plant operation,”
Applied Thermal Engineering vol. 71 (2) p. 847-857.
b. Submitted and under review
• Zapata Riveros, J., Bruninx,K., Poncelet, K., and D’haeseleer (2015).

“Stochastic bidding strategies for VPPs considering CHPs and intermittent
renewables” submitted to Energy Conversion and Management.
International Conferences
• Poncelet, K., Zapata Riveros. J., D’haeseleer, W. The potential of district heating
networks in Belgium – barriers and opportunities. International Gas Union
Research Conference. Copenhaguen, Denmarkt, 17-19 September 2014.
• Zapata Riveros, J., D’haeseleer, W., Vandewalle, J. (2013). Reducing

imbalances with virtual power plant operation. International Conference on
Microgeneration and Related Technologies. Naples, Italy, 15 − 17 April 2013.
• Vandewalle, J., Zapata Riveros, J., Keyaerts, N., D’haeseleer, W. (2012). The
impact of a dynamical gas-pricing mechanism on the gas demand at distribution
level. 12th IAEE European Energy Conference. Venice, Italy, 9 − 12 September
2012.
163
164 List of Publications
• Zapata Riveros, J., Vandewalle, J., D’haeseleer, W. (2012). Assessment of

different distributed generation technologies for a virtual power plant. IAEE
European Energy Conference. Venice, Italy 9 − 12 September 2012.
Other Symposia
• Zapata Riveros, J., (2014), Bidding of a VPP in the day-ahead market under
uncertainty: profit optimization & risk aversion. Young Energy Engineers and
Economists Seminar. Dresden, Germany, April 2014.
• Zapata Riveros, J., (2012), Reducing imbalances with virtual power plant
operation. Young Energy Engineers and Economists Seminar. Florence, Italy
December 2012.
International Reports
• Entchev, E., et al., Integration of Micro-Generation and Related Energy

Technologies in Buildings, IEA ECBCS annex 54 (to be published in 2015).
National Reports
• Zapata Riveros, J., (2012), Work Package 4, Deliverable 4.3.1. Natural gas and
distributed generation Concept: Micro CHP –Individual storage. LINEAR project.
• Six, D., et.al., (2012) Work Package 3, Deliverable 3.6. Final report storage
concepts and optimal combination with production technologies in the smart
grid. LINEAR Project.
Short Curriculum
Juliana Victoria Zapata Riveros
Born:
April 24, 1985
Medellín (Colombia)
Secondary School:
1997-2002
Colegio La Presentación
Ibagué (Colombia)
University:
2009-2010
Master in Energy Science and Technology
Swiss Federal Institute of Technology in Zurich, ETHZ, (Switzerland)
Faculty of Information Technology and Electrical Engineering, Faculty of Mechanical
and Process Engineering
2003-2007
Electronic Engineer
University of Ibagué (Colombia), Faculty of Engineering
Work:
2011-2015
PhD Researcher
University of Leuven, Faculty of Mechanical Engineering (TME)
Research group Energy & Environment/ Energy Institute
April- September 2008

IAESTE Internship
Swiss Federal Laboratories for Material Science and Technology, EMPA, (Switzerland)
165

PHD Thesis - Finalversion - Juliana Zapata - May 2015

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

PHD Thesis - Finalversion - Juliana Zapata - May 2015

Uploaded by

Copyright:

Available Formats

Facilitating the integration of renewable energy

through combined-heat-and-power flexibility

Juliana Victoria ZAPATA RIVEROS

Examination committee: Dissertation presented in partial

My sincere thanks go to my Colombian supporting group without whom my European

In this context it is proposed to group controllable and intermittent generation devices

The possibility to provide real-time balancing services or passive balancing is assessed

In deze context wordt er voorgesteld om de controleerbare en oncontroleerbare

De bedoeling van dit werk is om verschillende regelestrategieën te ontwikkelen voor

Er werd aangetoond dat micro-WKK’s de afwijkingen tussen lokale elektrische vraag

De resultaten voor passieve balancering van de aggregatie van micro-WKK’s in zowel

passieve balancering in staat is om de totale kost te reduceren gedurende alle

ACF Auto Correlation Function

Additional incentive applied on top of the regulation costs in cases

Electrical efficiency of the CHP [%]

Thermal efficiency of the CHP [%]

Additional incentive applied on top of the regulation costs in cases

 On/off status of the CHP device [-]

∆  Difference between the electric power generated by the CHP and

∆  Difference between the actual and forecasted electric power

∆  Total imbalance error of the VPP [MW]

∆  Negative imbalance volume [MW]

∆  Positive imbalance volume [MW]

∆  Imbalance caused by the photovoltaic installation [MW]

∆  Difference between RES electric power dispatched and scheduled

∆  Difference between the actual and scheduled fuel consumption of

∆!  Difference between the delivered and planned thermal power of

∆" # Extra gain or loss of green certificates [€]

∆$ Simulation time step [h]

∆% Temperature difference of the storage tank [K]

&' ()*+ Thermal efficiency of the boiler [%]

& Electrical efficiency of the reference system [%]

& Thermal efficiency of the reference system [%]

&,- Storage tank loss factor [%]

. Probability of occurrence of a scenario [%]

/ 0 Day-ahead market prices [€/MWh]

/ 12 Gas prices [€/MWh]

/ # Price to buy electricity from the grid [€/MWh]

/  Imbalance market prices [€/MWh]

/  Negative imbalance prices [€/MWh]

/  Positive imbalance prices [€/MWh]

67 Banding factor [-]

64 Intercept of the electric power to prime energy curve of the CHP

6-5 Intercept of the electric power to thermal power output curve of

8 Initial investment cost [€]

94 Specific heat [J/kg∙K]

  Operational cost of the CHP [€]

  Cost of producing electricity with the CHP [€]

 ; Deviation penalty [€]

 # Cost of the electricity bought from the grid [€]

  Imbalance cost [€/MWh]

 ,-<+-_>4 Start-up cost [€]

?1 First component of the piecewise penalty function [MW]

?2 Second component of the piecewise penalty function [MW]

?3 Third component of the piecewise penalty function [MW]

?CD Limits of the piecewise deviation function

E%F Minimum down time of each CHP unit [h]

 Electric power generated by the CHP [MW]

GHIJK Scheduled electric power output of the CHP [MW]

NIJN Electric power generated by the CHP used locally [MW]

JIKQJN Electric power output delivered by the CHP [MW]

0 Electric power traded in the day-ahead market [MW]

0 Day-ahead market bid [MWh]

On/off status of the CHP device [-]

∆ Difference between the electric power generated by the CHP and

∆ Difference between the actual and forecasted electric power

∆ Total imbalance error of the VPP [MW]

∆ Negative imbalance volume [MW]

∆ Positive imbalance volume [MW]

∆ Imbalance caused by the photovoltaic installation [MW]

∆ Difference between RES electric power dispatched and scheduled

∆ Difference between the actual and scheduled fuel consumption of

∆! Difference between the delivered and planned thermal power of

/ 0 Day-ahead market prices [€/MWh]

/ # Price to buy electricity from the grid [€/MWh]

/ Imbalance market prices [€/MWh]

/ Negative imbalance prices [€/MWh]

/ Positive imbalance prices [€/MWh]

8 Initial investment cost [€]

Operational cost of the CHP [€]

Cost of producing electricity with the CHP [€]

; Deviation penalty [€]

# Cost of the electricity bought from the grid [€]

Imbalance cost [€/MWh]

,-<+-_>4 Start-up cost [€]

Electric power generated by the CHP [MW]

GHIJK Scheduled electric power output of the CHP [MW]

NIJN Electric power generated by the CHP used locally [MW]

JIKQJN Electric power output delivered by the CHP [MW]

0 Electric power traded in the day-ahead market [MW]

0 Day-ahead market bid [MWh]

Electric power demand [MW]

1 0R Forecasted electric power output of the VPP [MW]

; Electric power generated by the PV installation [MW]

;GHIJK Forecasted electric power output of the PV installation [MW]

;JIKQJN Actual electric power output of the PV installation [MW]

Expected electric power generated by the RES [MW]

R Electric power generated on real time [MW]

R Real time energy generation [MWh]

ST Energy generated by the wind power plant [MWh]

Primary fuel consumption of the CHP [MW]

V Net cash flow [€]

! Thermal (dis)charging power from/to the storage tank [MW]

! Thermal power generated by the CHP [MW]

! Thermal power demand [MW]

! State of charge of the thermal-storage tank [MWh]

" 0 Day-ahead market profits [€]

" Imbalance market profits [€]

" 0 Savings due to the self-consumption of the electricity [€]