Inter-Provincial Power Peak-Regulation Ancillary Service Market in the Regional Grid with Hydropower Participation

Before the spot market becomes fully mature, the Chinese power peak-regulation ancillary service market will continue to play a pivotal role in ensuring renewable energy integration and secure power supply. Unlocking the deep peakregulation potential of hydropower and establishing marketoriented allocation mechanisms are urgently required. This study investigates a peak-regulation market mechanism that incorporates hydropower into the Regional Peak-Shaving Ancillary Service Market. First, through a systematic analysis of the operational and economic characteristics of hydropower in peak regulation, criteria for deep peak-regulation are defined, a baseline for basic peak-regulation performance is established, and methodology to calculate the opportunity cost of deep peakregulation is proposed. Subsequently, focusing on a regional market framework based on generation rights replacement transactions, subdivided transaction categories are designed by addressing the significant cost disparities in deep peak-regulation between hydropower and coal-fired units, as well as regional variations in the energy value of wind and solar power across provinces. A “classified and tiered price caps with categoryspecific clearing” mechanism is developed, accompanied by an optimized market organization process. Market clearing and settlement models are constructed to enable a regional peakregulation ancillary service mechanism integrating hydropower, which coordinates differentiated compensation schemes for hydropower and coal-fired units while maintaining alignment with provincial peak-regulation markets. Finally, case studies demonstrate that the proposed mechanism optimizes peakregulation resource allocation, provides scientifically calibrated incentives to reflect the deep peak-regulation costs of hydropower, prevents renewable integration costs from exceeding their economic value, and enhances the utilization of peak-regulation potential from conventional power sources, thereby reducing system-wide operational expenses.