EBF 483
Introduction to Electricity Markets

9.3 Summary and Final Tasks

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Summary

In this lesson we have learned about the types of services demanded by power grid operators that complement the day-ahead and real-time market services discussed in Lesson 8. Ancillary services are those that provide power grid operators with fast response to changes in system conditions, such as a rapid increase in electricity demand or the sudden and unexpected loss of a power plant. These ancillary services include frequency regulation (which provides the fastest response to a system contingency, in a matter of seconds to minutes); reserves (which provide response in tens of minutes to an hour); reactive power (which helps the power grid maintain voltage levels); and black start (which the power grid uses to recover in case of a blackout). In areas of the U.S. that have undergone restructuring, some of these services are provided through markets while others are provided through rules and regulations.

We also learned about capacity markets, which provide payments to power plants as an economic inducement to commit to being able to produce electricity at some point in the future. Capacity payments can be received by existing power plants who then promise to stay operational in the future, or by new power plants that commit to be finished with construction and operational by a certain date. Particularly when market prices in the day-ahead and real-time energy markets are low, capacity revenues are a critical piece of profits for power plants. They are, however, controversial. Some believe that capacity markets are an inefficient way to ensure that power generators earn sufficient revenues, and allowing the spot price of electricity (the day-ahead or real-time price) to increase to high levels for a few hours per year would be a better way to ensure resource adequacy.

Reminder - Complete all of the Lesson 9 tasks!

You have reached the end of Lesson 9! Double-check the to-do list on the Lesson 9 Introduction page to make sure you have completed all of the activities listed there before you begin Lesson 10.