White paper: market design for low-inertia power systems: Ancillary services in GB

In 2021, the “Net Zero Strategy: Build Back Greener” set out the UK government’s policies and proposals for decarbonising all sectors of the UK economy [1]. This strategy states a particularly fast decarbonisation of the electricity sector. By 2035, all electricity will need to come from zero-carbon sources, which will require significant investment in low/zero carbon generation, electricity networks, different flexibility technologies and advanced control concepts, to support a cost-effective transition to a zero-carbon system without risking security of supply. Balancing electricity supply and demand in a low-carbon electricity system is increasing in complexity due to hours with high production of Renewable Energy Sources (RES) which reduce inertia levels [2]. Inertia is an element available in synchronous generators and loads that can resist drops in frequency, giving the grid time to rebalance supply and demand. Frequency must always be close to the nominal operating point (50 Hz in the UK) in order to maintain security of supply (avoid customer disruptions), even when a generation or load outage occurs. The inertia in rotating steam, gas or hydroelectric turbines naturally slows the rate at which frequency changes after a fault, but most RES, such as wind and solar photovoltaic (PV), do not currently provide any inertia. This means power systems are becoming more vulnerable to frequency deviations, making frequency containment Ancillary Services (AS) more valuable during hours with high-RES generation. Great Britain (GB) during the COVID-19 national lockdown [3], is a very informative example of this trend. In this context, security of supply for low carbon electricity systems is recognised as a growing challenge for system operators. However, current electricity markets do not provide clear incentives for maintaining frequency security [4]. Moreover, consideration of services such as inertia, which depends on the amount of generation synchronised to the grid, challenge current pricing mechanisms[5]. This white paper, Market design for low-inertia power systems: Ancillary services in GB, proposes a novel market mechanism that will align the market design with the simultaneous scheduling of energy and frequency containment AS provision in an economic and efficient manner. AS provision will be potentially addressed by a wide variety of providers, including conventional synchronous generators, RES, storage systems, and Electric Vehicles (EVs), which will be incentivised by the proposed future market design. Furthermore, this methodology provides a new framework for allocating the cost of procuring frequency containment AS among the market players that trigger these requirements. The proposed methodology distributes the payments for frequency containment AS among all the market participants that create the need for these services. This novel market design will provide appropriate incentives for the development/deployment of advanced technologies and control concepts to support a cost-effective transition to a secure low/zero-carbon electricity system, through the provision of appropriate AS. Although at present, electricity consumers directly pay for all AS costs (i.e., costs are socialised), we argue that electricity generators should be responsible for covering these costs, as it is detailed in [6]. This cost allocation is inspired by the work presented in [7], in which contingency reserve costs are allocated among generation units considering their size and probability of unavailability. This market design is the core new concept, shifting from the historical approach based on socialising AS costs, to an efficient cost allocation concept recognising that the size of the plant is the key driver for these costs. This white paper concludes by highlighting the potential impact of the proposed market design on advancing technology deployment and supporting a cost-effective transition to a secure low-carbon electricity system.