What Is Ancillary Services?
Ancillary services refer to specialized functions and services within energy markets that are essential for maintaining the reliability, stability, and security of an electric power system. These services, distinct from the actual generation and transmission of bulk electrical energy, ensure the smooth and continuous flow of electricity by balancing supply and demand in real time. They are crucial for grid stability and are typically managed by system operators, such as Independent System Operators (ISOs) or Regional Transmission Organizations (RTOs), who oversee wholesale electricity markets.
History and Origin
The concept of ancillary services gained prominence with the restructuring and deregulation of the electric utility industry, particularly in the United States during the 1990s. Prior to this, vertically integrated utilities managed all aspects of power delivery, from power generation to distribution. As wholesale power markets became more competitive, the need to unbundle these services became apparent to promote open access to the transmission system. The Federal Energy Regulatory Commission (FERC) played a pivotal role in formalizing the definition and requirements for ancillary services. In 1996, FERC Order No. 888 mandated that transmission providers offer non-discriminatory open access to their transmission lines and explicitly defined several ancillary services necessary to support power transmission.5 The FERC defines ancillary services as "those services necessary to support the transmission of electric power from seller to purchaser, given the obligations of control areas and transmitting utilities within those control areas, to maintain reliable operations of the interconnected transmission system."4 This regulatory framework laid the groundwork for the development of distinct markets for these crucial supporting services.
Key Takeaways
- Ancillary services are specialized functions vital for the reliable operation of electric power grids, complementing basic energy transmission.
- They maintain grid stability by balancing supply and demand in real time and managing system contingencies.
- Examples include frequency regulation, voltage support, and operating reserves like spinning reserve and non-spinning reserve.
- Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) typically procure these services through dedicated markets.
- The increasing integration of renewable energy sources amplifies the importance and complexity of ancillary services.
Interpreting Ancillary Services
Ancillary services are not directly consumed like electricity but are vital for ensuring the quality and reliability of the power supply. Their interpretation revolves around how effectively they enable the grid to respond to disturbances and maintain operational parameters within acceptable limits. For example, a well-functioning frequency regulation market indicates that the system can quickly adjust to minor fluctuations in generation or demand, preventing widespread issues. Similarly, the availability of sufficient black start capability signifies the system's resilience and ability to recover from a complete blackout. The adequacy and cost of ancillary services are key indicators of a power system's health and efficiency.
Hypothetical Example
Consider a regional electric grid managed by a system operator. At 3:00 PM on a hot summer day, a large industrial facility suddenly goes offline, causing an unexpected drop in electricity demand, while simultaneously, a cloud passes over a major solar farm, reducing its power generation. These rapid changes could disrupt the grid's delicate balance.
To counteract this, the system operator immediately dispatches resources that have contracted to provide frequency regulation. Generators providing "regulation down" quickly reduce their output to match the drop in demand and solar output, preventing the grid frequency from rising too high. Simultaneously, if the solar output drop was significant, the operator might call upon resources providing spinning reserve to inject more power, ensuring overall supply still meets the revised demand. This coordinated response, facilitated by the ancillary services market, prevents potential instability, brownouts, or blackouts, maintaining a steady power supply to all market participants.
Practical Applications
Ancillary services are integral to the daily operation of modern electric grids. They manifest in various forms, each addressing specific needs for system reliability. For instance, real-time markets often trade in regulation services, where generators or other resources adjust their output rapidly in response to system operator signals to keep frequency stable. Voltage support is another critical ancillary service, provided by facilities that can inject or absorb reactive power to maintain stable voltage levels across the transmission lines and prevent localized power quality issues.
With the increasing penetration of renewable energy sources like wind and solar, which are inherently intermittent, the demand for flexible ancillary services has grown significantly. These sources often require greater balancing services to manage their variability and uncertainty. Solutions like enhanced demand response programs, where consumers reduce their electricity use during peak times, can also contribute to ancillary service provision. Integrating variable renewable energy sources poses new challenges for system operators, necessitating innovative operational and technical solutions, including reliable ancillary services.3
Limitations and Criticisms
While essential, the design and operation of ancillary services markets face several limitations and criticisms. One challenge lies in the complexity of market design, requiring transparent and fair mechanisms to ensure providers are adequately compensated.2 The valuation and pricing of these services can be particularly challenging, as they involve accurately assessing the real-time value of flexibility and responsiveness. Furthermore, the increasing integration of renewable energy sources presents new technical and economic complexities. For example, some market designs may not fully incentivize newer, more flexible resources like energy storage to participate optimally, or they may struggle to fully account for the locational value of certain services.1 There are ongoing discussions within the industry and regulatory bodies about adapting existing ancillary services to cope with new physical challenges and evolving market dynamics, ensuring continued system security and reliability.
Ancillary Services vs. Capacity Markets
Ancillary services and capacity payments are both critical components of electricity markets, but they address different aspects of grid reliability. Ancillary services, as discussed, are about maintaining the instantaneous balance and quality of the grid (e.g., frequency, voltage, and immediate reserves) by ensuring real-time operational flexibility. They compensate resources for their ability to quickly respond to deviations between supply and demand or system disturbances.
In contrast, capacity markets are designed to ensure that there is enough generation capacity available in the future to meet projected peak demand and maintain a reserve margin. They provide a long-term revenue stream to generators (or other resources like demand response) for simply being available, regardless of whether they are dispatched for energy or ancillary services in real time. The goal of capacity markets is to incentivize new investment in power plants or other resources needed to meet future system needs, whereas ancillary services compensate for operational contributions in the present.
FAQs
What are the main types of ancillary services?
The main types of ancillary services include frequency regulation (maintaining grid frequency), voltage support (maintaining voltage levels), and operating reserves (such as spinning reserve and [non-spinning reserve), which are standby generation capacity that can be rapidly brought online in case of unexpected outages or demand surges. Other services include black start capability and energy imbalance services.
Who provides ancillary services?
Ancillary services are provided by various market participants in the electricity markets. These can include traditional power plants (coal, natural gas, hydro), renewable energy facilities (wind and solar, especially with advanced inverters), energy storage systems (like batteries), and even large industrial consumers who can reduce their demand (through demand response programs).
Why are ancillary services important?
Ancillary services are vital because they ensure the stable and reliable operation of the electric grid. Without them, even small fluctuations in electricity supply or demand could lead to widespread power outages, equipment damage, and economic disruption. They provide the necessary "shock absorbers" and balancing mechanisms for the complex, interconnected power system.
How are ancillary services paid for?
In many restructured electricity markets, ancillary services are procured through competitive markets where providers bid to offer their services. System operators then select the most cost-effective bids to meet their reliability requirements. The costs of these services are typically passed on to electricity consumers through transmission charges or other regulated fees.