Electricity Ancillary Service Markets Receive Policy Support from Multiple Regions

Digital Energy Storage Network News: Recently, provinces including Yunnan, Guizhou and Shandong have successively released trading rules for participation in the electricity ancillary service market. Shandong took the lead nationwide in releasing the operation mechanism for the electricity ramping ancillary service market, enriching the varieties of electricity ancillary service transactions in China.

Industry insiders interviewed noted that although 14 regions in China have launched electricity ancillary service market mechanisms, the market is generally small in scale, limited in product varieties and few in participants. Further refinement and improvement are required for the development of the electricity ancillary service market.

Exploring New Trading Products
The Yunnan Regulatory Office has recently issued the Yunnan Frequency Regulation Ancillary Service Market Operation Rules (2023 Draft for Comments), proposing to foster an effective frequency regulation ancillary service market in Yunnan. The Implementation Plan (Draft for Comments) for New Energy Storage to Participate in Power Market Transactions in Guizhou Province clarifies rules for independent energy storage and generation-side storage to take part in peak-shaving and black-start transactions of electricity ancillary services. Shandong has pioneered the operation mechanism for the electricity ramping ancillary service market across the country.

Industry insiders hold that with massive grid integration of new energy, the power system has a growing demand for ancillary services. Shandong’s ramping ancillary service marks China’s continuous exploration of diversified electricity ancillary services and can effectively mitigate sharp fluctuations in electric energy prices. As one of the first eight national pilots for electricity spot market development, Shandong has innovatively established China’s first capacity compensation mechanism for the electricity spot market, laying a solid foundation for developing more varieties of electricity ancillary services.

Wu Junhong, an expert on power distribution and retail, told reporters from China Energy News that ramping ancillary service is a typical type of electricity ancillary service, differing from frequency regulation mainly in response time. Generally, frequency regulation ancillary services respond within seconds to less than 5 minutes; ramping resources adjust their output in accordance with dispatching instructions within 5–15 minutes. “Ramping ancillary services offer a convenient way for energy storage and third-party independent ancillary service providers such as virtual power plants to participate in the ancillary service market.”

Since China’s first electricity peak-shaving ancillary market was launched in 2014, a relatively complete ancillary service market system has been established in a short period. Trading products cover peak shaving, frequency regulation, reactive power regulation, reserve capacity and more. As the market is still in the early stage of development, most regions focus on peak shaving, while some areas also develop frequency regulation and reserve ancillary service markets.

Mechanisms to Be Improved
“From the perspective of product types, China’s electricity ancillary service portfolio lacks products such as voltage support, black start and peak-shaving capacity. Frequency regulation markets have not been further subdivided according to unit response speed,” said Yang Su, Professor-level Senior Engineer at the Institute of Corporate Strategy, State Grid Energy Research Institute, at the recent release conference of the Analysis Report on Domestic and International Power Market Reform. Participants in China’s electricity ancillary service market are mainly coal-fired and gas-fired power plants. Demand-side flexible resources lack channels to join the market, and emerging players including virtual power plants and load aggregators have not been granted clear status as independent market entities.

Yang Su told China Energy News that as the share of new energy generation rises, the proportion of ancillary service charges in total electricity bills has gradually increased in other countries. In China, however, the total cost of electricity ancillary services accounts for a low share, and the market scale needs to be expanded. Most of the costs of China’s electricity ancillary services are allocated among power generators, while factors affecting power system balance come from both generation and consumption sides. The mechanism to directly pass through such costs to end users remains imperfect. In addition, the electricity ancillary service market system lacks coordination between provincial and inter-provincial markets. Poor connection between the two tiers leads to redundant allocation of power system regulating resources.

Strengthen Coordination and Integration
How to improve China’s electricity ancillary service market? Yang Su suggested continuous innovation in ancillary service products. As the share of renewable energy rises, power system operation presents new characteristics. Power markets worldwide are actively introducing new ancillary service products such as ramping products, system inertia and fast frequency regulation. “With the rapid growth of distributed power sources, emerging market players including energy storage, virtual power plants, load aggregators and microgrids keep emerging. It is necessary to expand the scope of eligible participants. Many countries abroad have incorporated these new players to tap the flexible regulation potential of power systems, while lowering and clarifying technical thresholds for various ancillary services.”

“It is critical to strengthen the coordination between the development of the ancillary service market and the electricity spot market,” Yang Su stated. “Typical countries overseas design ancillary service market mechanisms tailored to their overall power market models. They achieve alignment with spot markets via separate or joint clearing, effectively stimulating the willingness of flexible resources to participate in ancillary service markets. China can further unlock flexible resources on both generation and demand sides. Moreover, cross-regional sharing and mutual support of ancillary service resources should be promoted in the future. Surplus frequency regulation resources should be allowed to engage in cross-regional transactions to realize resource sharing across a wider area.”