For the permittance of renewables in the spanish secondary reserves market

Abstract

Recent Spanish legislation has enacted a complete reform of the energy sector in efforts to balance system costs with revenues and reign in the accumulating tariff deficit. Under the new legislation, wind energy and other renewables must compete against traditional thermal and hydro plants, yet are not allowed in the ancillary services market for grid stability. As Wind was the number one source of energy for Spain in 2013, and as any practical future which is dependent on renewables will necessitate them to provide ancillary services, there has been a growing interest to determine the consequences of allowing wind generation into the Secondary Reserves Market (SRM). This research is conducted from a single agent perspective with the intention of answering if the investment costs necessary to participate in the Secondary Reserves Market will be outweighed by the revenue a wind producer is likely to receive. Additionally, if true, this thesis aims to parameterize under what conditions it will be beneficial for a wind producer to participate in the SRM and investigates possible strategies a wind agent could pursue. As provision of Secondary Reserves would likely require a wind agent to change from a market-clearing schedule to that which would allow for the maximum amount of band offer, this change must be managed by participation in the Intraday Market and may constitute an additional cost. Thus the final calculation of revenue considers Primary Effects or the direct revenues from participation in the SRM, and Secondary Effects or the costs/benefit from bartering power in the Intraday Market. Revenue calculation, denoted as the Estimated Capturable Income (ECI), is subject to some uncertainty. Thus to give different perspectives on possible revenues, three methods of ECI calculation have been developed: a conservative estimate, a probable estimate, and an optimistic estimate. The investment costs assumed in this research are taken from previously conducted technical studies which proved that wind farms acting in clusters can provide Secondary Regulation within reliability criteria. These costs were socialized across a test-bed of 488 MW of installed wind capacity and constitute a unitary investment cost of €3,053 per MW. Therefore the principle conclusions from the analyses performed throughout this thesis is that a wind producer could expect to earn between € 762 to € 1,238 per MW of Installed Wind Capacity through participation in the Secondary Reserves Market. When applying this to an existing case, the Huéneja cluster of 254 MW of wind capacity, wind operators/owners could expect to gain between € 193,753 to € 314,712 annually and could recoup investments within three years. The thesis results indicate that maximum benefit can be derived by participating in the SRM in those hours which experience a Capacity Factor of 41% or greater. Further investment analysis based upon ten years of simulated inflows imply that the necessary investment for such a cluster would experience an IRR between 35%-56% and constitute an NPV between € 1.1 – € 2 Million for an initial investment of € 523,174. In an industry with economic scopes of 20 years or more with the expected regulated rate of return for wind installations at 7.5% according to The 2013 Energy Reform Details, the results indicate that participation in the Secondary Reserves Market for wind producers would be both attractive and economically feasible.