Assignment-1

Q1: What is the downside of compensating conventional ramping generators on marginal cost instead
of identifying them as a separate ancillary service?

In many places, regular power generators don't increase their output quickly. This service is seen as a
separate addition and is only paid for based on the extra cost of making electricity. When there is a high
demand for energy, it can cause prices to go up, which can disrupt the market for those who are not
providing extra energy.

To solve this problem, a special product is made to help balance the energy grid by providing extra
power when needed. It is made specifically for quickly adjusting the amount of energy being used.
Moreover, when these fast ramping products are bought and sold in the ancillary service market, it
allows for more fast ramping capacity to be available. This helps to decrease the sudden increases in
prices that occur when there is not enough ramping capacity.

OR

One possible downside of compensating conventional ramping generators on marginal cost instead of
identifying them as a separate ancillary service is that it may create inefficiencies and distortions in the
electricity market. Marginal cost pricing is based on the assumption that generators are price-takers and
that their output is determined by the intersection of supply and demand curves. However, ramping
generators have the ability to influence the market price by adjusting their output in response to system
conditions and price signals. If they are compensated on marginal cost, they may have an incentive to
ramp up or down strategically to increase their profits, rather than to provide a reliable and flexible
service to the grid. This could lead to higher prices, lower social welfare, and reduced system security.
Therefore, it may be more efficient and fair to recognize ramping as a separate ancillary service and
compensate ramping generators based on their opportunity costs and the value they provide to the
system.

Q2: What are some key responsibilities of TSOs, DSOs and Regulators to enable the integration of new
products pertaining to ancillary services?

TSOs, DSOs and Regulators are key actors in the electricity system that have different but
complementary roles to enable the integration of new products pertaining to ancillary services. Ancillary
services are essential for maintaining the reliability and security of the power grid, such as frequency and
voltage control, black start, reserve and balancing.

TSOs are responsible for operating and maintaining the transmission network, which connects large-
scale generation and demand centers across regions and countries. TSOs also procure ancillary services
from various sources, such as generators, aggregators, storage and demand response, to ensure the
stability of the system. TSOs need to adapt their operational and market frameworks to accommodate
the increasing penetration of variable renewable energy sources (VRES) and distributed energy resources
(DERs) that can provide ancillary services.
DSOs are responsible for operating and maintaining the distribution network, which connects smaller-
scale generation and demand at the local level. DSOs also manage the congestion and power quality
issues that may arise from the integration of VRES and DERs. DSOs need to develop new capabilities and
tools to monitor, control and optimize the operation of their networks, as well as to coordinate with
TSOs and other stakeholders to facilitate the participation of DERs in ancillary service markets.

Regulators are responsible for setting the rules and incentives that govern the behavior and interactions
of TSOs, DSOs and other market participants. Regulators need to ensure that the regulatory framework is
conducive to innovation and competition, while safeguarding the public interest and consumer welfare.
Regulators need to balance the trade-offs between efficiency, equity, quality and security of supply, as
well as environmental and social objectives. Regulators also need to foster cooperation and coordination
among TSOs, DSOs and other actors to enable the optimal use of resources and infrastructure for
providing ancillary services.

OR

TSOs, DSOs and Regulators play important roles in facilitating the integration of new products related to
ancillary services. Some of their key responsibilities are:

TSOs are responsible for ensuring the security and reliability of the transmission system, as well as
balancing supply and demand in real time. They need to coordinate with DSOs and other market
participants to procure and dispatch ancillary services from various sources, including new products such
as demand response, energy storage and distributed generation.

DSOs are responsible for operating and maintaining the distribution network, as well as connecting
customers and distributed energy resources to the grid. They need to collaborate with TSOs and
Regulators to enable the participation of new products in ancillary services markets, as well as managing
congestion and voltage issues on the distribution level.

Regulator is responsible for setting the rules and incentives for the operation and development of the
electricity system, as well as ensuring fair competition and consumer protection. They need to design
and implement regulatory frameworks that support the integration of new products in ancillary services
provision, as well as addressing potential barriers and challenges such as interoperability, data access
and quality standards.

Q3: What are the downsides to introducing new products pertaining to ancillary services in the
market?

Ancillary services are essential for maintaining the reliability and stability of the power system. They
include frequency regulation, voltage control, spinning reserve, black start, and others. However,
introducing new products pertaining to ancillary services in the power market may have some
downsides. Some of the possible drawbacks are:

Increased complexity and uncertainty in the market design and operation. New products may require
new rules, mechanisms, and algorithms to ensure efficient and fair allocation of resources and revenues.
They may also introduce new sources of risk and volatility in the market outcomes.

Reduced incentives and opportunities for innovation and investment. New products may create barriers
or distortions for existing or potential providers of ancillary services, especially if they are not adequately
compensated or coordinated. They may also reduce the scope for innovation and investment in
alternative or complementary solutions, such as demand response, energy storage, or distributed
generation.

Increased costs and challenges for system planning and coordination. New products may increase the
operational and capital costs of providing ancillary services, as well as the technical and regulatory
challenges of ensuring system security and adequacy. They may also complicate the coordination and
integration of different regions, markets, and stakeholders.