Auxiliary Service Dynamic Compensation Mechanism Design for Incentivizing Market Participants to Provide Flexibility in China

Because of the rapid growth of new energy and the accompanying considerable uncertainty in the power market, the demand for flexibility in a power system has risen sharply. In the meantime, the market structure of auxiliary services has changed, resulting in market participants (MPs) benefiting less than expected from providing flexible services. To encourage MPs to provide flexibility, this study proposes a dynamic design framework for an auxiliary service compensation mechanism. To evaluate the proposed framework, a case study is conducted, examining a peak-shaving service in Liaoning province in northeast China. First, the operational status and limitations of the typical product, the peak-shaving service, in China's flexibility auxiliary services market are analyzed. Then, taking into consideration the time value of the flexible products provided by the MPs, a dynamic mechanism for hierarchical compensation of flexibility auxiliary service costs is proposed, and a mathematical model aimed at optimizing the MPs' comprehensive income is constructed. The results show that, compared with the existing traditional mechanism, the proposed method can effectively guarantee fair remuneration for the flexibility provider, while easing the tense supply-demand relationship in the flexibility market.