The operational potential of an integrated flexibility market for Dutch system operations

Abstract

A transmission system operator (TSO) is responsible for balancing (BA) and congestion management (CM) of the high voltage grid. BA matches supply and demand while CM ensures the save transport of electricity. For both functions the TSO uses procured upward or downward reserves from connected parties, called flexibility. Five flexibility markets exist: Frequency Containment Reserve (FCR), automatic Frequency Restoration Reserve (aFRR), manual Frequency Restoration Reserve directly activated (mFRRda), Reserve Other Purposes (ROP), and Capacity Restriction Contracts (CRCs). FCR, aFRR, and mFRRda are used for BA, while ROP and CRCs are used for CM. Each product, as these are called, has distinct bid requirements and renumeration schemes. Therefore, flexibility providers commit their capacity to specific products in advance according to their needs and capabilities. Consequently, a TSO lacks the ability to address potential flexibility shortfalls in one area by drawing on capacity reserved for another. Mismatches can arise, possibly leading to stressful situations for operators, higher costs, and even regional power outages. In addition, the various market options create complexities for participants potentially increasing the likelihood of inefficiencies and misallocations of flexibility resources.

To address this issue and improve system efficiency, this study explored the possible integration of these markets, combining two or more of the current products into a single flexible reserve product, which offers can be used universally. This provides TSOs with more leeway to mix and match, increasing the use of the available capacity, and simplifies the offering process for market participants. The study specifically analyzed a combination of the capacities currently offered through aFRR and ROP in context of the Dutch system operations. These products turned out to have notable similarities, including moderate response times, overlapping procurement timelines, and comparable system properties, which increases the likelihood that their capacities can be used universally. In addition, these products had the highest accessibility of historical data, which was important for the proposed quantitative analysis, an area identified as a significant gap in the existing literature. The simulation compared the current market design, where aFRR and ROP handle distinct BA and CM issues, with an integrated system where capacities are interchangeable. Performance was measured by problem-solving capacity, failure frequency, capacity usage for BA and CM, and costs. Historical data over five days was used, simulating various imbalance and congestion scenarios.

Results showed a significant improvement: BA and CM costs for the TSO dropped by 70% and 80%, respectively, thanks to better utilization of low-priced bids. The problem-solving capacity, especially in the upward balancing direction, rose by 360%, attributed to complementary reserves from aFRR and ROP. CM capacity usage increased by 11%, as low-priced aFRR bids overruled the increased effectivity of bids for CM. While integrating aFRR and ROP showed significant benefits, combining markets like FCR and CRC, which have specific characteristics, is less promising. A partial integration of more general markets, while keeping specialized products, appears more feasible and still offers flexibility for TSOs. Challenges remain, including the need for locational information in all bids and potential auction structure adjustments. Further research should explore the best auction designs and operational rules for integrated market designs.