Who should pay for frequency-containment ancillary services? Making responsible units bear the cost to shape investment in generation and loads

TL;DR

This paper advocates for a causation-based cost allocation for frequency-containment ancillary services in renewable-heavy grids, aiming to influence investment and tariff policies.

Contribution

It proposes a shift towards responsibility-based cost sharing for ancillary services, emphasizing the need for regulatory reforms and investment incentives.

Findings

Cost socialization is increasingly inefficient with high renewable penetration

Responsible parties should bear the costs of ancillary services they cause

Guidelines for implementing causation-based cost allocation are outlined

Abstract

While the operating cost of electricity grids based on thermal generation was largely driven by the cost of fuel, as renewable penetration increases, ancillary services represent an increasingly large proportion of the running costs. Electric frequency is an important magnitude in highly renewable grids, as it becomes more volatile and therefore the cost related to maintaining it within safe bounds has significantly increased. So far, costs for frequency-containment ancillary services have been socialised in most countries, but it has become relevant to rethink this regulatory arrangement. In this paper, we discuss the issue of cost allocation for these services, highlighting the need to evolve towards a causation-based regulatory framework. We argue that parties responsible for creating the need for ancillary services should bear these costs. However, this would imply an important change in electricity market policy, therefore it is necessary to understand the impact on current and future investments on generation, as well as on electricity tariffs. Here we provide a mostly qualitative analysis of this issue, defining guidelines for practical implementation and further study.