Managing Power System Variability - Operating Reserves

With the proliferation of variable wind and solar generating resources, the operational characteristics of power systems are changing and managing system variability is becoming more challenging. Operating Reserves (OR) are the primary tool power system operators use to manage system variability and their use and evolution will become increasingly important as system variability increases and changes. OR are critical to the secure and reliable operation of the power grid, but they are rarely discussed and are therefore not well understood by many people.? The intent of this article is to provide a high-level explanation of OR in Alberta for non-experts to hopefully provide an appreciation for the importance of this suite of critical grid reliability services and the importance of OR in the net zero grid transition. ?

The Electricity Balancing Act

A unique aspect of power systems is that supply and demand must always be instantaneously balanced. For most of the 100+ year history of the grid, the two main sources of variability were changes in demand and unexpected changes in supply or demand due to generators suddenly failing, transmission lines tripping, or loads suddenly disconnecting from the system. Since most generators are able to tightly control their output levels, power system operators rely on them to balance changes in demand and compensate for other generators or transmission lines tripping and over the years, power system operators have refined a set of services called Operating Reserves to successfully manage variability on all power systems worldwide. In Alberta, the entity that is responsible for power system operations is the Independent System Operator (ISO) known as the Alberta Electric System Operator (AESO). The ISO is responsible for the operation of the power system, the operation of the markets for wholesale electricity and ancillary services (AS), and the long-term planning of the Alberta transmission system, among other duties. In Alberta’s market structure, the ISO is the sole buyer of AS for the power system. To operate the power system and keep supply and demand in balance, the ISO uses a variety of tools, such as generator dispatches based on market price, directives to specific transmission and generation operators, a variety of automation and control systems, and a variety of ancillary services (AS), which includes Operating Reserves.? ???

The Alberta Electric Utilities Act defines ancillary services as “those services required to ensure that the interconnected electric system is operated in a manner that provides a satisfactory level of service with acceptable levels of voltage and frequency”.? The ISO procures a variety of different AS from both loads and generators, including Operating Reserves, Black Start Services, Transmission Must Run service, and others.? I will only discuss Operating Reserves in this article and leave the discussion of other AS for another time.

Operating Reserves (OR)

When generators are online providing energy (kWh) the ISO pays some generator operators to “reserve” some unused generator capacity so that it can be utilized to help balance mismatches between supply and demand in real time operations.? If all the generators that were online were operating at their maximum output, there would be no flexibility to provide small amounts of extra energy if load suddenly increases or a generator or transmission lines suddenly goes offline (trips) and creates a supply-demand imbalance.? Operating Reserves are unused capacity on generators, or loads that can reduce quickly, that the ISO can use to balance the system.

Each power system has slight variations in the naming and structure of OR, and in Alberta there are three types of Operating Reserves – Regulating Reserve (RR), Spinning Reserve (SR), and Supplemental Reserve (SUP).? Due to their different operational uses, RR is the highest value product, SR is the second highest, and SUP is the lowest value product.?

RR is used to help maintain the fine supply-demand balance on a continuous basis while SR and SUP are used to manage sudden unexpected changes in the supply-demand balance, like a generator, load, or transmission line suddenly tripping, which are known as "contingencies" in power system speak.? For this reason, SR and SUP are also called Contingency Reserves.? I should also mention that while the majority of SR and SUP are provided by generators, these services can also be provided by loads connected to the transmission system provided they meet the ISO’s technical requirements.

When you look at the ISO's Real Time Dashboard, you will see the current level of contingency reserves on the system shown as DCR - Dispatched Contingency Reserve.

Regulating Reserve (RR)

RR is used to provide instantaneous supply-demand balancing services. A generator operator providing RR makes some unused capacity on their generator available to the ISO to automatically "regulate" small supply-demand imbalances on the system. This is accomplished through an automated control scheme called Automatic Generation Control (AGC) in which the ISO provides a control signal to all generators who are supplying RR and this signal automatically directs all of the generators to either increase or decrease its output in very small increments to balance supply and demand in real time.? Because there are many generators providing RR at the same time, the small up/down increments from each generator act collectively to balance the system so that no single generator has to make large adjustments to its output.?

Because RR works in real time, requires specific controls to be installed, and requires frequent adjustments from a generator, it is typically the most valuable OR product compared to Spinning and Supplemental Reserves.? The ISO requires between 115 to 215 MW of RR during a typical operating day, depending on forecast system conditions.

Spinning Reserve (SR)

SR is the second tier of Operating Reserves.? SR is unused capacity on a generator that is online and synchronized to the system that the ISO System Controller can direct to provide energy within 10 minutes.? For example, if a 100 MW generator sells 25 MW of SR to the ISO, this means that when they are online, they can provide up to 75 MW of energy to the real time energy market and must “reserve” 25 MW of their capacity for the ISO to direct if required.? Because SR requires a generator to be online and synchronized, SR also provides frequency support. When a large supply-demand imbalance occurs, the ISO System Controller calls the a generator operator providing SR and directs them to provide a certain amount of energy from the amount they have reserved depending on how much the System Controller requires to help balance the system. The ISO typically requires between 200 to 235 MW of SR during a typical operating day, depending on forecast system conditions.

Supplemental Reserve (SUP)

SUP is the last tier of Operating Reserves.? SUP is SR is unused capacity on a generator that the ISO System Controller can direct to provide energy within 10 minutes, but it does not have to be online and synchronized, it can be offline.? Similar to SR, when the ISO requires SUP, the ISO System Controller will call a SUP provider and direct them to supply a certain amount of energy depending on system rebalancing requirements. SUP does not provide frequency support and cannot act as quickly as SR and, for these reasons, it is the least valuable OR.? The ISO typically requires between 200 to 235 MW of SUP during a typical operating day, depending on forecast system conditions.

Active and Standby Operating Reserves

Now, just to add a bit more complication, the ISO procures two classes of Operating Reserves – Active and Standby.? Active OR are the primary OR the ISO relies on during the operating day and the market participants providing Active OR must reserve this capacity for the ISO during the operating day, so these providers are “dispatched” by the ISO.? Standby OR are used to provide backup for Active OR in the event that one or more Active OR providers cannot meet their commitment during the operating day.? Standby OR providers are only “dispatched” by the ISO when all of the Active OR providers for the specific product (RR, SR, or SUP) have been fully dispatched.? Standby OR services are typically worth less than Active OR services.?

On a typical operating day, the ISO has 40 MW of Standby RR, 35 MW of Standby SR, and 15 MW of Standby SUP ready to dispatch in case Active OR providers are unable to meet their committed volumes.

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How Does the ISO Determine the Required Volumes of Operating Reserves?

The volumes (in MW) of OR that are required to operate the Alberta power system are determined by criteria set by the Western Electricity Coordinating Council (WECC).? WECC is a NERC “Regional Entity” that has responsibility for bulk power system reliability for the Western Interconnection, which includes the power systems of Alberta, BC, and 14 western US states.? All of these provinces and states are synchronously connected through the Western Interconnection and WECC’s role is to coordinate the planning and operations of all the entities in the Interconnection to ensure power system reliability across the Interconnection. There are 3 interconnections in North America, and all power systems within each one are synchronized to each other but there is no synchronization between interconnections, so they are connected by high voltage direct current (HVDC) transmission lines.?

As part of its reliability responsibilities, WECC sets the criteria that determine the minimum levels of OR that each entity requires to operate its system within the larger context of the Western Interconnection. This is necessary to ensure the coordinated management of the frequency of the Interconnection by all entities within the Interconnection. The Alberta Reliability Standards that form the basis for the volumes of OR that the ISO procures to meet WECC’s requirements are BAL-001-AB-2 and BAL-002-WECC-AB1-2.

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How Does the ISO Procure and Price Operating Reserves?

The ISO procures OR through a daily day ahead market that is facilitated by an online exchange called Watt-EX. Each day, the ISO posts the volumes of the Active and Standby OR that it requires for the next operating day along with a price for each product, which is the ISO’s “bid” price.? Then market participants submit their “offers” of volume and price for each product.? The market participant offer that matches the total volume of the product the ISO requires is the Marginal Price for that product.? The price for each OR product is called the “Equilibrium Price” that is determined as follows:

? Equilibrium Price = (ISO bid price + Marginal Offer Price) ÷ 2

This sets the value for each OR product in the day ahead market.? Each OR product is then “indexed” to the pool price for energy at the end of each operating day.? After each operating day is finished, each market participant that provided OR for that day is paid the Pool Price for each hour plus the Equilibrium Price for the OR product they supplied in that hour.? So, the final price for each OR product in each hour of the operating day is:

Final OR Price = Pool Price + Equilibrium Price

This means that market participants are paid a “premium” for supplying OR in that they get the energy price (Pool Price) for each hour that they supply OR plus the Equilibrium Price for the OR product.? This premium reflects the fact that that OR are essential to power system reliability and are therefore more valuable than energy alone.

For context, the ISO spent $494M on OR in 2022 and $334M in 2021, and the large variance is primarily due to year over year differences in Pool Price.

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OR in the Future

Operating Reserves are critical to ensure the reliable operation of the power system. OR have been refined over the 100+ years of the history of power systems to effectively manage small instantaneous supply-demand imbalances and large unexpected contingencies involving supply or demand. However, the proliferation of highly variable renewable energy resources is challenging the ability of the existing suite of OR to effectively manage increasing power system variability, and refinements to OR and new ancillary services products will be required. For example, the ISO is piloting a new Fast Frequency Response product to provide rapid response to changes in supply to maintain system frequency stability. This is one example of new ancillary services we will need to adapt to the changing operational characteristics of the power system as we transition towards net zero.

I have only provided a brief overview of Operating Reserves to help the reader develop a high level understanding and appreciation of these essential reliability services.? For those who would like to learn more, here are a few resources that may be helpful from the AESO, NERC, and WECC.

AESO Ancillary Services Page

AESO Operating Reserve Information Document

AESO Regulating Reserve Information Document

AESO Contingency Reserve (SR & SUP) Information Document

NERC Reliability Guideline – Operating Reserve Management

WECC Information

Previous article discussing an example of solar generation variability