Modeling the Dutch Frequency Restoration Reserve Market

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Abstract

With an expected growth of renewable energy sources, the amount of variable andweather-dependent energy input to the electricity system increases. This is a growing source of deviations between day-ahead forecasts and the realisation on time of delivery. On the other hand, new sources of flexibility (demand response, storage, EV, wind curtailment) are being developed. Modeling electricity markets is becoming increasingly complex with more interconnection, stochastic inputs and smarter optimization methods. The aim of this research project was to create a model for the Dutch Frequency Restoration Reserve (FRR) market in theNetherlands. With this model scenarioswere tested extending to 2030. Thiswas done by looking at the fundamentals of this market, expected future developments, development of a computational model and assessment of improved wind forecast accuracy, wind curtailment and large scale storage scenarios. Combining spot market unit commitment data from Eneco scenarios with unit constraints on ramping, the available flexibility capacity was calculated for every Program Time Unit (PTU). Using this capacity and its cost price, a bidding mechanism was used to establish a merit order for the available flexibility. Bidding was modelled to reflect profit optimization and validated with historic FRR market prices and volumes. The historic FRR data was taken for PTUs with a spotmarket price comparable to the expected spot price market. This was done to ensure differentiation between days of the week and time of the day. Linear price elasticity was included to reflect the effect of offering a volume on market prices. Furthermore, the effects of market participation on its own imbalance costs were taken into account. Storage and wind curtailment were shown to have an enormous impact on the availability of flexibility to the market and to market pricing. Wind curtailment will limit prices on the down regulating direction. While its availability coincides with wind production, it was shown in Chapter 4 that its availability is less than for storage. Improvements in VRES forecasting will have a much smaller impact. Through capacity contracts the Dutch TSO ensures capacity to provide both upward and downward regulating energy. Moving towards smaller periods for contracting, could enable more participants to become active in the market. The most important uncertainties for the future development of the FRR market are international harmonization and integration and liquidity of intraday and balancing markets as reviewed in Chapter 5. Combined with new forms of flexibility, this could lead to a different pricing regime than observed in the current scenarios.