Strategic Bidding in the Frequency-Containment Ancillary Services Market

TL;DR

This paper develops a strategic bidding model to analyze market power in the frequency-containment ancillary services market, highlighting how a strategic player can influence prices in a decarbonizing power system.

Contribution

It introduces a non-convex primal-dual bi-level model to study strategic bidding behavior in coupled energy and ancillary services markets.

Findings

Strategic players can significantly influence AS market prices.

Market power effects are more pronounced in the AS market than in the energy market.

The model applied to Great Britain 2030 scenario demonstrates potential market manipulation.

Abstract

The vast integration of non-synchronous renewable energy sources compromises power system stability, increasing vulnerability to frequency deviations due to the lack of inertia. Current efforts to decarbonise electricity grids while maintaining frequency security still rely on Ancillary Services (AS) provision, such as inertia and frequency response, from flexible synchronous generators, placing these type of units in an advantageous position in the AS market. However, in the ongoing transition to decarbonisation, not enough attention has been given to analysing market power in the frequency-containment AS market. This work presents a strategic bidding model designed to analyse market power in the coupled energy and frequency-containment AS market. Through a non-convex primal-dual bi-level formulation, we determine the interaction of a strategic market player with the rest of the market that behaves competitively. The case study is based on Great Britain in 2030, demonstrating the capacity of the strategic player to influence prices. While this impact is perceived in the energy market, it is particularly pronounced in the AS market.