Economic assessment of the participation of wind generation in the spanish ancillary services markets

Abstract

In Spain renewable generation is not allowed to take part in ancillary services. However, the government is considering which should be the required tests to authorise renewable generation to participate in secondary and tertiary regulation, as well as deviations management mechanism. Therefore, it can be expected that wind farms will be allowed to participate in ancillary services in the near future. The aim of this Master Thesis is the economic assessment of the participation of wind generation in the Spanish ancillary services markets. Firstly, a theoretical assessment of the most suitable circumstances for wind generation to participate in secondary and tertiary regulations and in the deviation management service has been carried out. According to this assessment, the tertiary regulation has been identified as the most interesting market for wind generation to participate in. To estimate the economic impact for wind agents of their participation in tertiary regulation, three possible bidding strategies are proposed: a base strategy, an alternative strategy and a joint strategy. The base strategy aims to reduce the wind production deviations scheduling the latest production forecast in the tertiary regulation market, which is made closer to real time. The alternative strategy tries to detect trends in the system that imply a preference to provide upward or downward reserve. As any wind production forecast is made up of a mean value and an interval of confidence, it may result interesting to schedule the day-ahead in the confidence interval but not in the mean expected value in order to take advantage of the opportunity cost of providing reserves within the confidence interval for participating in tertiary regulation. The joint strategy combines the advantage of the base strategy of reducing the wind production deviations and the advantage of the alternative strategy of capturing additional profits modifying the current design of the bids submitted for the day-ahead market. The joint strategy allows capturing the highest profits. With its implementation, it has been estimated that the wind sector would have increased its annual profits in more than 4 million € in the years 2012, 2013 and 2014. It also presents the highest number of hours in which the original profit would have growth. Nevertheless, the original profit would be also reduced in some hours. However, the percentage of these hours with respect to the total hours of the year is small (lower than 10% in the years studied). The base strategy is desirable because its nature of reducing deviation implies no risks compared to the present situation, while obtaining higher annual profits. The joint strategy is preferable over the alternative strategy because it captures higher profits with lower risk. The choice between the joint strategy and the base strategy will depend on the risk aversion of wind agents. If the expected annual profits are prioritized, the joint strategy will be chosen. If wind agents want to prevent the reduction of the original profit in every hour; the base strategy will be more suitable for them. In conclusion, a regulatory change that enables wind generation to provide tertiary regulation is desirable because only with the base strategy the costs of deviations for wind agents will be reduced; hence decreasing the cost of deviations of the system which implies reducing the costs for the consumers.