INNOVATIVE

ANCILLARY SERVICES
INNOVATION LANDSCAPE BRIEF
© IRENA 2019
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ISBN 978-92-9260-129-4

Citation: IRENA (2019), Innovation landscape brief: Innovative ancillary services, International Renewable Energy Agency, Abu Dhabi.

About IRENA
The International Renewable Energy Agency (IRENA) is an intergovernmental organisation that supports
countries in their transition to a sustainable energy future, and serves as the principal platform for
international co-operation, a centre of excellence, and a repository of policy, technology, resource and
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use of all forms of renewable energy, including bioenergy, geothermal, hydropower, ocean, solar and
wind energy in the pursuit of sustainable development, energy access, energy security and low-carbon
economic growth and prosperity. www.irena.org

Acknowledgements
This report was prepared by the Innovation team at IRENA’s Innovation and Technology Centre (IITC) and was authored by Arina
Anisie, Elena Ocenic and Francisco Boshell with additional contributions and support by Harsh Kanani, Rajesh Singla (KPMG India).

Valuable external review was provided by Helena Gerard (VITO), Pablo Masteropietro (Comillas Pontifical University),
Rafael Ferreira (former CCEE, Brazilian market operator) and Gerard Wynn (IEEFA), along with Carlos Fernández, Martina Lyons
and Paul Komor (IRENA).

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1 NEW ANCILLARY SERVICE PRODUCTS AND MARKET PARTICIPANTS

New products
• Ramping products
• Fast response frequency reserve

New market participants Increased flexibility

• Wind turbines providing inertial response for VRE integration
• Solar PV and batteries providing voltage support
• Distributed energy resources providing frequency and voltage control

3 SNAPSHOT 2 KEY ENABLING FACTORS

Batteries can provide ancillary services in Australia, Defining performance-based products
Belgium, Germany, Netherlands, UK and USA
Separating capacity and energy products,
Wind power generators can provide balancing and contracting periods
services in nine European countries
Separating upwards and downwards
A US system operator uses separated ramping
balancing products
products to help the system meet ramping needs
The exchange of balancing services across
borders in Europe is increasing
Local flexibility markets emerge in Germany
and UK, where ancillary services are procured
by the DSOs

WHAT ARE ANCILLARY SERVICES?

Ancillary services are vital to support power system operation. There are two types:
frequency and non-frequency services (voltage control, black start).
Innovative ancillary services can address the variability and uncertainty of the VRE.

INNOVATIVE ANCILLARY SERVICES

Ancillary services need to be adapted to increase system flexibility.
The ancillary service market should be open to all participants.
 I N N OVAT I O N L A N DS C A P E B R I E F

ABOUT THIS BRIEF

T his brief forms part of the IRENA project

“Innovation landscape for a renewable-powered
future”, which maps the relevant innovations,
to create actual flexibility solutions for power
systems. Solutions to drive the uptake of solar
and wind power span four broad dimensions
identifies the synergies and formulates solutions of innovation: enabling technologies, business
for integrating high shares of variable renewable models, market design and system operation.
energy (VRE) into power systems.
Along with the synthesis report, the project
The synthesis report, Innovation landscape for a includes a series of briefs, each covering one of
renewable-powered future: Solutions to integrate 30 key innovations identified across those four
variable renewables (IRENA, 2019a), illustrates the dimensions. The 30 innovations are listed in the
need for synergies between different innovations figure below.

INNOVATION DIMENSIONS

ENABLING TECHNOLOGIES BUSINESS MODELS MARKET DESIGN SYSTEM OPERATION

1 Utility-scale batteries 12 Aggregators 17 Increasing time 25 Future role of distribution

2 Behind-the-meter 13 Peer-to-peer electricity granularity in electricity system operators
batteries trading markets 26 Co-operation between
14 Energy-as-a-service 18 Increasing space transmission and
3 Electric-vehicle
granularity in electricity distribution system
smart charging 15 Community-ownership
markets operators
4 Renewable models
19 Innovative ancillary
power-to-heat 16 Pay-as-you-go models
services
27 Advanced forecasting
5 Renewable 20 Re-designing capacity
of variable renewable
power-to-hydrogen power generation
markets
21 Regional markets 28 Innovative operation
6 Internet of things
of pumped hydropower
7 Artificial intelligence
22 storage
and big data 23 Market integration
8 Blockchain of distributed energy 29 Virtual power lines
resources 30 Dynamic line rating
9 Renewable mini-grids
10 Supergrids 24 Net billing schemes

11 Flexibility in conventional
power plants

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 I N N OVAT I V E A N C I L L A RY S E RV I C E S

This innovation landscape brief examines 

innovations in ancillary services – a key market
design innovation that addresses the variability The brief is structured as follows:
and uncertainty of the VRE share in the grid.
Ancillary services need to be adapted to increase I Description
system flexibility by remunerating new services
needed in a high-variability scenario. Moreover, II Contribution to power sector transformation
in addition to being open to conventional
generation units, the ancillary service market III Key factors to enable deployment
should be open to new participants, such as
large-scale renewable generators and battery IV Current status and examples of ongoing
storage, and to providers of distributed energy initiatives
resources (DERs), including demand response,
small-scale battery storage, and distributed V Implementation requirements: Checklist
VRE generation.


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 I N N OVAT I O N L A N DS C A P E B R I E F

I. DESCRIPTION

T he increased deployment of VRE generation

sources introduces variability and uncertainty
into power system operation. To address these
To address the variability and uncertainty of
increasing VRE in the grid, ancillary services
need to be adapted to increase system
issues, transmission system operators (TSOs) and flexibility, incentivise fast response and ramping
distribution system operators (DSOs) procure ability, and remunerate each of the services
system services: the deployment of flexible on- accordingly. Moreover, the definitions and
demand generation, storage or demand-side measurement schemes of some conventional
response to help maintain grid reliability and ancillary services do not provide a proper basis
security. This brief discusses how the design for evaluating the performance of different
of ancillary service markets can evolve to help resources. As a consequence, some resources
system operators integrate VRE by addressing may not receive the right incentives to provide
the introduced variability and uncertainty. flexibility, thus limiting the flexibility available
To ensure a reliable and stable system, the to system operators. To address variability
power supply must meet demand at all times and uncertainty in the grid, there is a need to
to maintain the nominal grid characteristics in redesign the existing ancillary service products
terms of frequency and voltage. and create new ones. For instance, Pennsylvania
Jersey Maryland (PJM) Interconnection, an
“Ancillary services” are services necessary for independent regional transmission operator
the operation of a transmission or distribution in the United States, has developed different
system. Typical ancillary services are procured frequency regulation products for slower
by TSOs and can be clustered into frequency conventional resources and for faster battery
ancillary services (balancing of the system 1) and storage resources.
non-frequency ancillary services (voltage control
and black-start capability). Conventionally, TSOs Moreover, in addition to being open to
have utilised power from generating resources, conventional generation units, the ancillary service
storage resources (such as pumped hydro market should be open to new participants, such
storage or capacitors) or reactive power control as large-scale renewable generators and battery
equipment (such as synchronous or static storage, and to providers of DERs, including
compensators or capacitor banks) to obtain demand response, small-scale battery storage
ancillary services (Singh & Papalexopoulos, and distributed VRE generation.
1999). These strategies help system operators
maintain grid frequency and voltage at desired Table 1 briefly describes traditional and new
levels while provisioning some generation ancillary services, as well as new players allowed
capacity as reserves for contingency events to provide these services. The innovative ancillary
(Stoft, 2002). services are highlighted.

1 Supply may vary with unexpected increases or decreases in power supply.

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 I N N OVAT I V E A N C I L L A RY S E RV I C E S

Table 1 Types of ancillary service and associated products

Ancillary Typical
service Product Description response time
Frequency Primary The automatic local regulation provided by Sub-seconds to
regulation regulation generating unit speed regulators. This level of seconds
regulation sustains frequency levels, preventing
large deviations from the scheduled value.
Innovations:
• Fast frequency response is a new product designed to remunerate the provi-
sion of fast response1. Batteries are great providers of such services, creating
the possibility of additional revenue streams for battery operators/owners.
• Wind turbines can provide inertial response through power electronic
converters.
• Photovoltaic (PV) installations, direct current systems and batteries can
also provide synthetic inertial response if the inverter is programmed to
do so. However, as inverters are not stuck with characteristics of large
spinning masses and have more options to provide system stability, this
might not be the best use of them.
• If regulation allows, DERs can provide this service.
Secondary The automatic regional regulation provided by auto- 5–15 minutes
regulation matic generation control (AGC), which sends signals
from the control centre to certain generators to re-
establish the nominal frequency value and restore
the primary reserve capacity.
• If regulation allows, DERs can provide this service.
Tertiary The manual regional regulation provided by gener- >15 minutes
regulation ating units and controlled by the system operator.
Non-frequency Voltage The injection of reactive power to maintain system Seconds
regulation support voltage within a prescribed range.
Innovations:
• Voltage control through reactive power provided by resources connected
to the power system through inverters, such as solar photovoltaic and
battery storage.
• If regulation allows, DERs can provide this service.
Black start The ability to restart a grid after a blackout. Minutes
Innovations: Fast ramping resources that can respond to large net
• Ramping load variations in a short time. This product properly
Minutes
products remunerates the fast ramping capability of generators
and incentivises flexibility.

Innovations in ancillary services

Note: The nomenclature and the definitions of different types of ancillary service used in this table are not standardised and can vary
significantly from country to country. Historically, the nomenclature and definitions have been based on the services provided by energy
resources for reliable grid operations. However, different types of ancillary service are increasingly being categorised as specialised
products, catering to specific grid requirements. For example, “Commission Regulation (EU) 2017/1485 of 2 August 2017 establishing
a guideline on electricity transmission system operation” specifies how TSOs across the European Union should manage their network,
taking into account that the power system is integrating more renewables and that markets are increasingly interconnected (European
Commission, 2017a).
1 Sometimes, the inertial response of wind turbines is also classified under the category of fast frequency response.
(Based on: Banshwara et al., 2017; Batlle, 2013; Kirby, 2004)

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 I N N OVAT I O N L A N DS C A P E B R I E F

Trading ancillary services with neighbouring TSOs The European balancing guideline sets down
within a regional market is also key to increasing rules on the operation of balancing markets
the overall flexibility of the transmission throughout the EU, referring to those markets
system and reducing balancing costs. Several that TSOs use to procure balancing services
stakeholders in the European Union (EU), (either balancing energy or balancing capacity 2)
including the Agency for the Cooperation of to keep the system balanced in real time. This
Energy Regulators (ACER), national regulatory regulation provides opportunities for cross-
authorities, and TSOs within the European border trading within such balancing markets
Network of Transmission System Operators for (European Commission, 2017b). As such, this
Electricity (ENTSO-E), have developed a set of framework enables a greater cross-border
rules on the operation of balancing markets, availability of resources for balancing the system
which entered into force via “Commission and, in turn, lowers costs for procuring these
Regulation (EU) 2017/2195 of 23 November 2017 services. (See also Innovation Landscape Brief:
establishing a guideline on electricity balancing”. Regional Markets. [IRENA, 2019b])

2 Commission Regulation (EU) 2017/2195 defines “balancing energy” as the energy used by TSOs to perform balancing and provided by a balancing service
provider; “balancing capacity” is defined as the volume of reserve capacity that a balancing service provider has agreed to hold and in respect to which the
balancing service provider has agreed to submit bids for a corresponding volume of balancing energy to the TSO for the duration of the contract (European
Commission, 2017b).

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 I N N OVAT I V E A N C I L L A RY S E RV I C E S

II. CONTRIBUTION TO POWER

SECTOR TRANSFORMATION

T o increase system flexibility and integrate

a high share of VRE, while keeping the
system in balance, several innovative products
of innovative ancillary products allows new
market participants to offer such services:
wind turbines can be utilised to provide inertial
are being developed in different markets. One response, solar photovoltaic (PV) can offer
set of innovative ancillary services addresses reactive power support, and other DERs can
flexibility issues, remunerating those services help increase market liquidity across different
related to rapid ramping requirements, trading time frames and reduce ancillary service
frequency regulation, and so on. Another set procurement costs.

Figure 1: Innovations in ancillary services and examples

Ramping products

New ancillary services

Fast frequency response

by batteries

Increased flexibility through

innovative ancillary service
markets
Wind turbines providing
interial response

Solar PV and utility-scale

New market participants
storage providing
providing ancillary services
voltage support

Distributed energy resources

(DERs) providing frequency
and voltage control

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 I N N OVAT I O N L A N DS C A P E B R I E F

New ancillary services balancing market to serve the net load ramping
requirements. For example, California Independent
Ramping products System Operator (CAISO) in the United States was
among the first independent system operators in
With an increase in the VRE share, the net load3 North America to implement a separate flexibility
curve becomes increasingly volatile (Kirby & ramping product. In November 2016, CAISO
Milligan, 2008). Conventional generation, with a implemented Flexible Ramp Up and Flexible Ramp
controllable generation profile, is expected to be Down Uncertainty Awards, which are ancillary
increasingly displaced by low marginal cost VRE service market products to procure ramp-up and
generators and is instead expected to be used to ramp-down capability for 15 minute (min) and
provide back-up power. 5 min time intervals. The product is procured in
terms of megawatts (MW) of ramping required
System operators would need reserves that can in a 5 min duration, and any resource capable of
provide fast ramping capabilities to address fulfilling the ramping requirement can participate.
such net load volatility. Conventionally, net Market participants do not provide bids for this
load ramping requirements have been served product but are instead compensated according
by conventional generators. In most markets, to their lost opportunity cost of providing other
such ramping by conventional generators is not services in the ancillary service market. The price
identified as a separate ancillary service and is for providing ramp-up service is capped at USD
only compensated based on the marginal cost 247 per megawatt-hour (/MWh), while the price
of electricity production. When such ramping is for providing ramp-down service is capped at
procured through energy markets, steep ramping USD 152/MWh (CAISO, 2018).
requirements can lead to increased prices in the
energy market, thereby distorting the market Furthermore, when such ramping products
for participants who are not providing ramping are traded in the ancillary service market, the
services (Ela et al., 2012). availability of fast ramping capacity increases,
which in turn reduces the price spikes associated
To address this issue, a separate ramping or with ramping shortfall (Krad, Ibanez & Ela,
flexibility product is created as part of the 2015a). This is depicted in Figure 2.

Figure 2: Available ramping capacity with and without flexibility reserve products

6
Ramp [MW/5 min]

106.4 106.6 106.8 107 107.2 107.4

Time [h]

With flex Without flex

Source: IRENA (2017), adapted from Krad, Ibanez & Ela (2015a)

3 “Net load” is the difference between the load and the electricity production from variable renewable generation.

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 I N N OVAT I V E A N C I L L A RY S E RV I C E S

Fast frequency response provided by batteries New market participants providing

ancillary services
Grid frequency must be kept in the system within
a prescribed range for secure system operations. Wind turbines providing inertial response
In cases of sudden variation in demand and
supply in the system, grid frequency can suddenly “Inertial response” refers to the ability of
go out of range, thus affecting the reliability and synchronous generators to speed up or speed
security of the system. Conventionally, quick down to overcome immediate frequency
restoration of frequency within a few seconds to disturbances. Inertial response has been
minutes has been enabled by increased output traditionally provided by large thermal generators
by conventional generators through autonomous and large hydropower plants. Although such
governor control. However, with increased VRE frequency disturbances can be addressed
penetration, autonomous response offered by the using fast frequency response services, inertial
remaining conventional generators may not be response can provide faster response times and
sufficient to address frequency drops. Batteries more reliable response because it is an inherent
are well suited to providing balancing services feature of generators.
and fast frequency response because of their
short response times. VRE technologies have been exempted from
balancing responsibilities in many countries.
The fall in costs of battery storage technologies However, some VRE technologies can offer
has led to their increased deployment by system balancing services. Wind turbines connected to
operators as well as generators for various the power system through a power electronic
purposes. Battery storage technology has a converter can provide inertial response (also
sub-second response capability that makes it known as synthetic inertia) during frequency
suitable for use by system operators as a rapid disturbances. During a frequency surge, the
response frequency reserve. A separate ancillary power electronic controller can apply a retarding
service market product can be created to procure torque on the turbine to reduce generation,
such services from battery storage systems. For whereas during frequency drops (Ela et al.,
instance, National Grid in the United Kingdom has 2012), the controller can utilise the kinetic
added a new product to contract with battery energy of the turbine to increase power output
storage providers for fast frequency reserve (Morrena, Pierikb & Haana, 2006). This can also
services. In 2016, National Grid conducted an be achieved by reducing or increasing the blade
enhanced frequency response (EFR) tender angle to decrease or increase the power supply
under which it contracted eight battery storage (Miao et al., 2010). For instance, Hydro-Québec
facilities for four years to provide sub-second TransÉnergie, a TSO in Canada, requested an
rapid response frequency reserves (KPMG, 2016). inertia emulation function in the wind turbines as
a part of its 2 000 MW wind energy procurement
Similarly, Australia’s energy market operator tender (Brisebois & Aubut, 2011).
contracted Tesla’s 100 MW/129 MWh lithium-ion
battery in South Australia. The battery, known Inverters can be programmed to help control
as Hornsdale Power Reserve, provides accurate frequency as well, and the way that PV plants
response to the frequency control and ancillary are operated can be a factor in the ability to
services market at a lower rate than conventional provide frequency response. However, a question
sources of energy. In its first four months of is whether it is best to use inverters this way.
operation, the price of frequency ancillary services Inverters are not stuck with the characteristics of
was reduced by 90 % (Gabbatiss, 2018; Vorrath & large spinning masses and have more options to
Parkinson, 2018). provide system stability (Roselund, 2019).

In Japan, as opposed to the TSO procuring the Obtaining system services from VRE requires
ancillary service directly, some utilities require various policy measures, such as specific grid codes
that large solar PV projects control their feed-in and upgrades to the system services procurement
of electricity by using battery storage to meet mechanism (IRENA/IEA/REN21, 2018).
grid frequency requirements. For example, the
38 MW Tomakomai solar PV project includes a
20 MW lithium-ion battery, one of the world’s
biggest at the time of construction in 2017. The
sole application of the battery is to meet the
frequency requirements of the local energy utility,
Hokkaido Electric Power Company.

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 I N N OVAT I O N L A N DS C A P E B R I E F

PV power plants and utility-scale Distributed energy resources

storage providing reactive power
DERs, such as rooftop solar systems, behind-
Reactive power helps maintain voltages in the the-meter battery storage systems, plug-in
network within prescribed limits (Kirby & Hirst, 1997). electric vehicles, and commercial and industrial
However, reactive power flowing for long distances loads, can provide ancillary services to system
in the transmission and distribution grid causes a operators through price-based incentives, often
number of problems, which include inadmissible referred to as “explicit demand response”. By
voltage excursions and increased losses. Therefore, increasing liquidity and competition in the
reactive power must be supplied, when needed, ancillary service markets, DERs can also help
from a nearby source. This has conventionally lower ancillary service procurement costs. DERs
limited market mechanisms for procuring reactive may be allowed to participate independently or
power, as there may be limited alternative sources through aggregators or retailers, depending on
of reactive power at a given location. the market design in place.

Devices such as solar PV or battery storage, which For instance, in December 2017, the New York
have a solid-state electronics interface with the Independent System Operator (NYISO) released a
power system, can provide reactive power support concept proposal of market design to enable DERs
(Ela et al., 2012). Reactive power support from to participate in wholesale as well as ancillary
large-scale wind and solar generation connected service markets. Under this proposal, DERs would
to the grid via inverters is also important in some be treated on a par with other market players and
jurisdictions – notably, where high-quality primary would be able to participate in capacity reserve
energetic resources are in areas far from main load markets, regulation service markets, and so on,
centres and connect to main load centres via “weak” either directly or via aggregators of small-scale
networks. Designing proper mechanisms to ensure DERs (<100 kilowatts) (NYISO, 2017).
that these assets contribute to reactive power control
is also relevant. Such mechanisms can include: Also, DERs can participate in local flexibility
markets, if established. Local flexibility markets
• adequately designed connection requirements are platforms that centralise local flexibility
in grid codes, which may slightly increase offers to allow system operators to reliably and
capital expenditure requirements for generators economically relieve physical congestions and
and thus guide investment decisions bottlenecks from the grid (EPEX SPOT, 2019).
Being connected to the distribution grid, DERs are
• incentives oriented specifically to the potentially problematic for network stability and
procurement of reactive power as a separate reliability in the distribution network. In addition
product, which have been less common so far. to central utilisation of DER flexibility services in
traditional markets, decentralised management
of DERs by DSOs could be possible. The interest
in this type of management is rising, especially
because of upcoming risks for, among other
things, over-voltage and congestion with the
penetration of distributed generation. DSOs could
then procure local system services from DERs to
solve issues related to voltage regulation, power
quality and distribution network congestion.
(See also: Innovation Landscape Brief: Market
Integration of distributed energy resources
[IRENA, 2019c])

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 I N N OVAT I V E A N C I L L A RY S E RV I C E S

Potential impact on power sector transformation

• 
In Germany, renewable energy generators, • T
he deployment of the sub-second EFR
battery storage systems and industrial by National Grid in the United Kingdom
loads were allowed – alongside conventional is expected to result in costs savings of
generators – to participate in the balancing approximately USD 262 million4 over four
markets in 2009. In the period from 2009 to years compared with alternative ways of
2015, the balancing market size in gigawatts providing frequency response (KPMG, 2016).
(GW) decreased by 20  % and ancillary
service procurement costs by TSOs • A
 ccording to a study by Krad, Ibanez and Ela
decreased by 70 %. During the same period, (2015b), the deployment of flexibility reserve
system stability increased and the installed products, such as CAISO’s flexibility ramping
capacity of VRE increased by 200 %. This product (Flexible Ramp Up and Flexible
experience indicates that allowing new Ramp Down Uncertainty Awards), can offer
resources to participate in ancillary service value in managing uncertainty introduced
markets can help increase system stability by VRE (i.e. real-time prices that exceed
while reducing costs (Wang, 2017). USD 1 000/MWh).

4 Original figure of GBP 200 million converted to USD using the prevailing exchange rate as per Bloomberg on 24 July 2018 (www.bloomberg.com/quote/
GBPUSD:CUR).

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III. KEY FACTORS TO ENABLE

DEPLOYMENT

I ntroduction of innovative products and new

market participants requires revision of rules on
how these services should be procured are also
responsive resources such as batteries have
an advantage over conventional resources
and can be remunerated for this service (PJM
needed (e.g. more frequent contracting periods, Interconnection, 2018).
local markets, cross-border sharing of reserves).
Separating capacity and energy
Defining performance-based products products, as well as contracting period

Conventionally, different energy resources In many ancillary service markets, balancing

providing frequency regulation services have capacity and balancing energy are jointly
been compensated at the same remuneration, procured. Balancing capacity gives TSOs the
irrespective of their performance (IRENA, 2017). possibility of activating a certain amount of
However, battery storage-based resources balancing energy in real time. For instance,
can provide much faster regulation service automatic frequency restoration reserve (FRR)
than conventional generators. Therefore, the markets in Denmark and Spain and manual and
compensation mechanism must appropriately automatic FRR markets in Germany follow this
value the performance characteristics of different approach (IRENA, 2017). However, only those
resources. This will incentivise greater deployment generators that can offer balancing capacity can
of battery storage technology in providing offer balancing energy in real time. This method
ancillary services. does not reveal the most cost-effective resources
in real time. It also restricts the participation
For instance, in 2011 the Federal Electricity of various DERs, including VRE, because such
Regulatory Commission’s Order 755 mandated products are procured well in advance and most
compensation to resources providing frequency VRE resources or DERs cannot commit capacity
regulation based on their performance (FERC, earlier than in real time.
2011). Following this order, PJM Interconnection
implemented a new product to remunerate For instance, the Netherlands’ automatic
resources based on how fast they are able to and manual FRR markets, as well as Belgium
respond to the system operator signals. The and Denmark’s manual FRR market, procure
compensation is proportional to the response balancing capacity and energy as separate
time, thereby incentivising battery storage products (IRENA, 2017). For Belgium and the
systems in providing such services. Two Netherlands, two options are available: capacity
different signals were created – a conventional and energy in one product or as separate energy
signal and a fast response signal – so that fast products (free bids).

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 I N N OVAT I V E A N C I L L A RY S E RV I C E S

Separating balancing capacity products from Separating upwards and downwards

balancing energy products can help discover balancing products
cost-effective resources in real time while
allowing VRE resources and other DERs to offer In many ancillary service markets, frequency
their energy flexibility in such markets. For regulation service is procured as a single product
this, the acquisition of balancing energy has that includes both frequency regulation up and
to shift from yearly to monthly, or even daily, frequency regulation down services. For instance,
procurement. This will increase VRE resources in Denmark, Italy and Spain system operators
and DER participation in ancillary service procure such a unified frequency regulation
markets, thereby increasing system flexibility service under FRR requirements (IRENA, 2017).
while leading to increased deployment of such
resources. Procuring frequency regulation up and down as a
single product limits the amount of capacity and
The US National Renewable Energy Laboratory the types of resources that can participate in the
has conducted studies to analyse the changes ancillary service market. For instance, a combined-
required to operate reserve requirements due cycle plant operating at its minimum generation
to the introduction of up to 30 % solar PV and point could provide only regulation up, whereas a
wind energy resources on large portions of the wind plant operating at its maximum generation
western and eastern interconnections of the could provide only regulation down. However,
US grid. Studies concluded that the reserve neither resource would be able to participate
requirements should not be static, as they have in the ancillary service market, which procures
conventionally been, but instead should change regulation up and down as a single service.
according to the system conditions on a shorter Therefore, frequency up and down regulations
time scale, such as on an hourly basis (EnerNex should be procured as separate products. This
Corporation, 2011; GE Energy, 2010). will enable VRE resources, as well as DERs, to
participate in ancillary service markets, thereby
However, in systems where the short-term increasing system flexibility and resource
signals are, for whatever reason (e.g. volatility, deployment. For example, Elia, the Belgium
lack of credibility), insufficient to incentivise TSO, has defined two asymmetrical products
investments in resources capable of providing for frequency containment reserves (FCRs, also
ancillary services in real time, contracting them called R1): “R1- down” and “R1- up”, for which the
in advance can be a way to enable or unlock supplier needs to react to any frequency deviation
investments. bigger than 100 mHz (separated for the positive
and negative deviations) (Elia, 2018). CAISO
implemented Flexible Ramp Up and Flexible
Ramp Down Uncertainty Awards.

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IV. CURRENT STATUS AND

EXAMPLES OF ONGOING
INITIATIVES

S ome of the key indicators of an innovative

ancillary service market are described in the
table below. Case studies of innovative ancillary
services follow.

Table 2 Innovative ancillary service market: Key indicators

Key indicator Examples

VREs are able to participate in the • Wind power generators are allowed to provide balancing services in
existing ancillary service markets Belgium, Denmark, Estonia, Finland, the Netherlands, Poland, Spain,
Sweden, and the United Kingdom.
• In Chile, the first pilot was implemented to enable a PV power plant to
provide ancillary service to the utility grid and ensure grid stability.
New ancillary service products have • In the United Kingdom, a new product was introduced for battery
been designed for VRE integration storage: enhanced frequency response.
• Ramping products introduced in the United States.
• EirGrid, the Irish TSO, has defined several additional system service
products to cope with wind energy fluctuations.
• PJM Interconnection, a system operator in the United States, has
developed different frequency regulation products for slower
conventional resources and for faster battery storage ones.
Battery storage can participate in • Australia, Belgium, Germany, the Netherlands, the United Kingdom,
ancillary service markets and the United States.
Reforms are made to ongoing ancillary • The EU-wide development and implementation of network codes for
service market or balancing market balancing markets and system operation, including the procurement of
ancillary services by TSOs (applicable in all EU member states).
• In Denmark, wind turbine operators now face charges for incorrect
forecasts, the same way as conventional generators.
• In the United Kingdom, recent reforms have increased charges in
general for incorrect forecasts and rewarded generators and suppliers
that can plug these gaps.

Examples of new ancillary services within ±1 % of the target value of 50 hertz. The
rising share of renewables and declining share
National Grid’s enhanced frequency response of conventional generators in the energy mix in
tender (United Kingdom) the recent years had led to decreased system
inertia and an increase in frequency volatility. This
National Grid, the TSO in the United Kingdom, resulted in the need for faster frequency response
has the obligation to maintain system frequency than the existing options could provide.

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Until August 2016, National Grid was procuring Pan-European guidelines on electricity balancing
fast frequency response, which was its fastest and electricity transmission system operation
tool, with a primary response time of 30 seconds (European Union)
(s) and a secondary response time of 60 s. Then
National Grid introduced an enhanced frequency As part of the EU’s so-called third legislative
response (EFR) to provide sub-second rapid energy package, Regulation (EC) No 714/2009
response frequency reserves. The tender to sets out the rules governing access to the
procure EFR contracted eight battery storage network for cross-border exchanges in electricity,
facilities for four years at prices between USD with a view to ensuring the proper functioning of
9.21/MW/h and USD 15.74/MW/h.5 The tender the EU’s internal market in electricity (Council of
was oversubscribed by seven times, with 1.2 the European Union, 2009). This package created
GW of battery capacity being unsuccessful in ENTSO-E, which together with the Agency for
the tender, which indicated a large interest and the Cooperation of Energy Regulators (ACER),
appetite by battery storage developers to provide develops the European network codes and
these services (KPMG, 2016). guidelines (i.e. the rules for the operation of the
electricity sector), which are then adopted by the
Midcontinent Independent System Operator’s European Commission. Within this framework,
ramping product (United States) several network codes have been adopted,
including “Commission Regulation (EU) 2017/1485
To prevent pricing spikes in the energy market, of 2 August 2017 establishing a guideline on
Midcontinent Independent System Operator (MISO) electricity transmission system operation” and
in the United States has implemented a separate “Commission Regulation (EU) 2017/2195 of 23
ramping product to help the system meet ramping November 2017 establishing a guideline on
needs. The product is procured on a day-ahead as electricity balancing” (European Commission,
well as a real-time basis. Resources can provide 2017a, 2017b). The former lays down detailed
ramp up, ramp down or both, and the output in guidelines on operational planning for ancillary
MW they can attain within 10 min counts towards services, as well as load-frequency control and
the ramp up or ramp down. All dispatchable reserve rules, including operational agreements,
resources can participate in offering this product, frequency quality, load-frequency control
which is procured by MISO across its territory and structure, operation of load-frequency control,
does not vary by location or zone within MISO’s FCRs, FRRs, replacement reserves, exchange
territory. The resources providing ramping services and sharing of reserves, time control process,
are compensated for the lost opportunity cost, co-operation with DSOs, and transparency of
calculated from the clearing price of other products information. The balancing capacity products can
in the market (NYISO, 2018). be defined as follows:

New York Independent System Operator’s • Frequency containment reserves (FCR): Active
proposed flexibility ramping product (United power reserves available to contain system
States) frequency after the occurrence of an imbalance.

After the successful implementation of the • Frequency restoration reserves (FRR): Active
flexibility ramping product by CAISO and MISO, power reserves available to restore system
the NYISO proposed a similar flexible ramping frequency to the nominal frequency and, for a
product in its 2018 master plan. The NYISO synchronous area consisting of more than one
expects that the product would be procured load-frequency control area, to restore power
in both day-ahead and real-time markets. balance to the scheduled value. A distinction
Moreover, the ramping requirement is expected is made between automatic FRRs and manual
to be specified in terms of the MW of response FRRs.
a resource can provide in a given time interval.
The resources providing the ramping service • Replacement reserves: Active power reserves
are expected to be compensated at the lost available to restore or support the required level
opportunity cost of a resource participating in of FRRs to be prepared for additional system
the energy market (NYISO, 2018). imbalances, including generation reserves.

5 Original figure of GBP 7/MW/h and GBP 11.97/MW/h converted to USD using the prevailing exchange rate as per Bloomberg as on 26 July 2018
(www.bloomberg.com/quote/GBPUSD:CUR).

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Local flexibility markets Flexibility platform for congestion management

(Germany)
Piclo flexibility market (United Kingdom)
The grid operators Avacon Netz, EWE NETZ and
Open Utility is developing an online marketplace, TenneT, and the European power exchange EPEX
called Piclo Flex, to enable DSOs to access SPOT, have developed a clear and transparent
location-specific flexible resources. These local market mechanism for flexibility providers that
flexibility markets will play a critical role in want to participate in market-based congestion
balancing local smart grids and facilitating the management. By introducing local order books,
rollout of distributed generation, storage and flexibility offers based on network topological
electric vehicles. It acts as a marketplace for information will be recorded. These offers can
DSOs to procure services from DERs that can then be accessed by system operators, who can
provide flexibility at times when the network is use them to avoid grid congestions. EPEX SPOT
becoming more congested. This market is open to acts as a neutral intermediary between system
aggregators, suppliers, battery operators, electric operators and flexibility providers.
vehicle charge points, industrial consumers or any
other flexibility provider. In Germany, there is growing input from wind
power plants in the north, while the main
Piclo Flex allows network operators to see what is consumption areas are in the south. As a result,
available in their regions; they can then plan how grid congestion at all voltage levels is increasingly
to meet their needs accordingly. It also allows occurring. This has caused substantial expenditure
them to provide greater transparency to flexibility on grid-stabilising measures, such as feed-in
providers seeking to determine the opportunities management and redispatch. The transmission
for additional revenues. DSOs can hold auctions to grid is particularly concerned by this, but
procure services in flexible capacity from a range congestion is also increasingly occurring at the
of providers that have uploaded their capabilities distribution grid level.
to the platform.
This flexibility platform is demonstrating that a
A smart and flexible network could reduce the voluntary market-based instrument can prevent
United Kingdom’s emissions from electricity forecasted grid congestion by enabling better
generation, but only if the DSOs can quickly matching of generation and consumption, while
and easily access flexible assets on the grid. taking into account local flexibility assets. In
Open Utility’s resource optimisation algorithms, addition to other providers of local flexibilities, the
delivered via an intuitive online service, lower the automobile manufacturer Audi is participating in
barriers to entry and manage the deployment this flexibility market with its power-to-gas plant
of localised flexibility in a highly efficient and in Werlte, Lower Saxony.
scalable way.

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Ancillary services trading across Other pan-European pilot projects for trading
borders ancillary services include:

Pan-European pilot projects for trading ancillary • International Grid Control Cooperation: A
services across borders (European Union) regional project operating the imbalance netting
process that involves 11 TSOs in eight countries:
As of 2017, several European projects that aim Austria (APG), Belgium (Elia), Czech Republic
to increase the exchange of balancing services (ČEPS), Denmark (Energinet.dk), France (RTE),
across borders had been initiated and had started Germany (50Hertz, Amprion, TenneT DE,
to show results. For example, the International TransnetBW), the Netherlands (TenneT NL) and
Frequency Containment Reserve co-operation Switzerland (Swissgrid).
is a common market for the procurement and
exchange of balancing capacity and involves • e-GCC: A regional project operating the
ten TSOs in seven countries: Austria (APG), imbalance netting process that involves Czech
Belgium (Elia), Denmark (Energinet), France Republic (ČEPS), Hungary (MAVIR) and Slovakia
(RTE), Germany (50Hertz, Amprion, TenneT DE, (SEPS).
TransnetBW), the Netherlands (TenneT NL) and
Switzerland (Swissgrid). As a result of this project, • Imbalance Netting Cooperation: A regional
where FCRs are procured through a common project operating the imbalance netting process
merit order list, FCR capacity prices have been that involves Austria (APG), Croatia (HOPS) and
steadily decreasing and converging across the Slovenia (ELES).
participating countries. Other initiatives in Europe
aim to net imbalances or exchange balancing • Platform for the International Coordination
energy across TSO scheduling areas, such as the of Automated Frequency Restoration and
project to exchange energy from automatic FRRs Stable System Operation: Starting point for
between Austria and Germany. As a result, the the implementation and operation of a platform
overall cross-zonal exchange of balancing energy for automatically activated FRRs, in compliance
(including imbalance netting) almost doubled with the European network codes.
between 2015 and 2017 (ACER/CEER, 2018).
• Manually Activated Reserves Initiative: An
initiative to design a platform for exchanging
balancing energy from manually activated
FRRs, launched in 2017 by 19 European TSOs.

• Trans European Replacement Reserves

Exchange: A project selected by ENTSO-E to
become the European platform for the exchange
of balancing energy from replacement reserves
pursuant to the network codes, in which nine
TSOs participate: Czech Republic (ČEPS),
France (RTE), Italy (Terna), Poland (PSE),
Portugal (REN), Romania (Transelectrica), Spain
(RED), Switzerland (Swissgrid) and the United
Kingdom (National Grid).

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V. IMPLEMENTATION
REQUIREMENTS: CHECKLIST

TECHNICAL Hardware:
REQUIREMENTS • Power electronic converters and control devices to enable inertial response
by wind turbines
• Inverters enabling PV, battery storage to provide ancillary services

Software:
• Extension of existing software applications or development of dedicated software
applications for trading of new products in the ancillary service markets
• Data analytics software to record and analyse ancillary service market transactions
REGULATORY Retail market:
REQUIREMENTS • Allowing DERs to participate in ancillary service markets
Wholesale market:
• Regulatory mandates for new ancillary service products that can enable better
integration of VRE into the system, as well as in recognition of the services VRE
generators can provide to the grid
Distribution and transmission system:
• Regional, national, federal or sub-national roadmap for integration of VRE generation
into the grid, encompassing role of ancillary service providers and including the design
of dedicated ancillary service markets at DSO or TSO level
• Permission for DSOs to procure ancillary services
• Strong co-operation frameworks between DSOs, TSOs and ancillary service providers

STAKEHOLDER TSOs:
ROLES AND • Conducting studies to evaluate development of new ancillary services for better
RESPONSIBILITIES
VRE integration
• Conducting pilots for new ancillary service products (including regional projects,
where applicable)
• Introducing specific grid codes and upgrading the system services
procurement mechanism
DSOs:
• Forecasting ancillary services that could be provided by DERs, based on historical
data and advanced weather forecasts
• Securely storing and sharing grid-related data with TSOs and other ancillary service
providers, according to applicable data privacy and sharing norms

New ancillary service providers (utility-scale VRE and DERs):

• Participating in ancillary service markets, where established
• Complying with existent regulation and technical requirements of the ancillary
service market, including information exchange with DSOs and TSOs
(e.g. capacity, location, type of DER)

Regulators:
• Defining and mandating new ancillary service products in collaboration with TSOs
and DSOs to enable better VRE integrationasts

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ABBREVIATIONS

ACER Agency for the Cooperation of GW gigawatts

Energy Regulators
min minutes
CAISO California Independent System
Operator MISO Midcontinent Independent System
Operator
CEER Council of European Energy
Regulators MW megawatts

DER distributed energy resource MWh megawatt-hour

DSO distribution system operator NYISO New York Independent System

Operator
EFR enhanced frequency response
PJM Pennsylvania Jersey Maryland
ENTSO-E European Network of Transmission
System Operators for Electricity PV photovoltaic

EU European Union s seconds

FCR frequency containment reserve TSO transmission system operator

FERC Federal Electricity Regulatory VRE variable renewable energy

Commission

FRR frequency restoration reserve

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INNOVATION LANDSCAPE BRIEF

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