A locational marginal price for frequency balancing operations in regulation markets

Abstract

The integration of increasingly more renewable energy resources on the electric grid requires consideration of market design for balancing power intermittency. We propose a new locational marginal price for the frequency regulating reserves currently utilized by system operators to balance random power fluctuations on electric grids. Like the widely used wholesale energy price, our proposed price considers the locational effects of delivering electricity services across a congested transmission system. We further propose a regulation market settlement policy which requires market participants with variable power injections to pay based on their frequency regulation needs instead of their energy needs. The calculation of the proposed price and market design is demonstrated using a test case. The results of the test case are further generalized to larger systems. We find the proposed price is more efficient than current regulation market clearing prices and better aligns regulation market design with the wholesale energy market. The limitations and market implications of this proposal are discussed.