Reserve procurement and transmission capacity reservation in the Northern European power market

Abstract

This paper provides the modeling approach and the associated results of determination of bidding prices for frequency restoration reserves (FRR) provision, and implications of cross-border transmission capacity reservation for FRR exchange. A model with three optimization blocks is developed. The FRR bidding price determination block uses an opportunity cost based approach to calculate the cost of providing FRR. For the FRR procurement, the transmission system operator (TSO) selects the cheapest bids with the possibility of cross-border exchange if transmission capacity is reserved for this purpose. In the day-ahead procurement block, optimal unit commitment and dispatch is determined, taking into account the reserve and transmission capacity allocations. A case study is done for the Northern European power system, consisting of the Nordic countries, Germany and the Netherlands. The results show how, among others, the FRR bidding prices are determined by the difference between the daily averaged sport price forecasts and the units’ marginal costs. The day-ahead and total reserve procurement costs are positively and negatively correlated to the system load respectively. As could be expected, costs are reduced in the FRR market when transmission capacity is reserved for this purpose. But a decrease in cost in the day-ahead market was also obtained for small transmission capacity reservations, caused by the increased flexibility in the FRR importing market. The total costs are the lowest for a transmission capacity reservation level of around 20%, illustrating that such reservation can be beneficial.