Bidding in Ancillary Service Markets: An Analytical Approach Using Extreme Value Theory

TL;DR

This paper introduces an analytical method using extreme value theory to improve reliability and computational efficiency in bidding strategies for electric vehicle aggregators in ancillary service markets, ensuring high reliability with fewer samples.

Contribution

It develops a novel chance-constrained optimization approach leveraging extreme value theory for better reliability and efficiency in stochastic flexibility bidding strategies.

Findings

Reduces bid violation rates by up to 8%

Solves optimization problems up to 4.8 times faster

Enables construction of bids with 99.95% reliability

Abstract

To enable the participation of stochastic distributed energy resources in ancillary service markets, the Danish transmission system operator, Energinet, mandates that flexibility providers satisfy a minimum 90% reliability requirement for reserve bids. This paper examines the bidding strategy of an electric vehicle aggregator under this regulation and develops a chance-constrained optimization model. In contrast to conventional sample-based approaches that demand large datasets to capture uncertainty, we propose an analytical reformulation that leverages extreme value theory to characterize the tail behavior of flexibility distributions. A case study with real-world charging data from 1400 residential electric vehicles in Denmark demonstrates that the analytical solution improves out-of-sample reliability, reducing bid violation rates by up to 8% relative to a sample-based benchmark. The method is also computationally more efficient, solving optimization problems up to 4.8 times faster while requiring substantially fewer samples to ensure compliance. Moreover, the proposed approach enables the construction of feasible bids with reliability levels as high as 99.95%, which would otherwise require prohibitively large scenario sets under the sample-based method. Beyond its computational and reliability advantages, the framework also provides actionable insights into how reliability thresholds influence aggregator bidding behavior and market participation. This study establishes a regulation-compliant, tractable, and risk-aware bidding methodology for stochastic flexibility aggregators, enhancing both market efficiency and power system security.