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A system operator's utility function for the frequency response market

Thomas Greve (), Fei Teng, Michael Pollitt () and Goran Strbac

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: How can the electricity system operator determine the optimal quantity and quality of electricity ancillary services (such as frequency response) to procure in a market increasingly characterized by intermittent renewable electricity generation? The paper presents a system operator's utility function to calculate the exchange rates in monetary values between different frequency response products in the electricity system. We then use the utility function in a two-sided Vickrey-Clarke-Groves (VCG) mechanism combined of two frequency response products 'enhanced and primary' in the context of the system in Great Britain. This mechanism would allow the market to reveal to the system operator the welfare optimal mix of speed of frequency response and quantity to procure. We show that this mechanism is the efficient way to support new faster sources of frequency response, such as could be provided by grid scale batteries.

Keywords: Utility function; ancillary services; system operator; energy storage; VCG mechanism (search for similar items in EconPapers)
JEL-codes: D44 L94 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-des, nep-ene, nep-reg and nep-upt
Date: 2017-07-10
Note: tg336
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Citations: View citations in EconPapers (2) Track citations by RSS feed

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http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1728.pdf

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Journal Article: A system operator’s utility function for the frequency response market (2018) Downloads
Working Paper: A system operator's utility function for the frequency response market (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1728

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