Performance-Based Pricing of Frequency Regulation in Electricity Markets

The emergence of high penetration of renewable energy sources in the energy mix of power systems has substantially increased the need for faster-ramping resources participating in the frequency regulation service procured via market mechanisms by the system operators. However, current market mechanisms do not properly align the incentives for participation since resources are not compensated for the actual frequency regulation they provide nor for the accuracy with which they follow the automatic generation control (AGC) dispatch signal. In this paper, we evaluate the current mechanisms for procuring, dispatching and compensating resources for the frequency regulation service. We also propose a comprehensive approach for calculating the performance payment that includes the actual service they provide and the accuracy with which they follow the AGC signal. Finally, we perform a study by deploying actual operational AGC data for analyzing the proposed methodology.