Costs of Ancillary Services & Congestion Management

1. Costs of Ancillary Services & Congestion Management Fedor Opadchiy Deputy Chairman of the Board

2. United Power System of Russia 2 • 69 regional power systems; • 7 interconnected power systems; • 457 325 kilometers of power lines; • Near700 power plants of installed capacity 5 MW and higher; • Over 900 substationsof voltage 220 kV and higher; • Total installed capacity of generation over 226 000MW; • Peak power consumption 157425 MW • Network model for SCUC,DAM,BM: • 8503 nodes; • 13190 branches; • 1062 generators; • 269 sections

3. Long-term constraints Vast area and transmission constraints determine division of UPS into 21 free power flow zones for Capacity Market

4. Markets structure • Capacity Market • Provides long-termreliability – prevents generationinsufficiency • Forms efficientstructureof generation (with minimal aggregated costs) • Providesprice signalsto increase regional demanddepending on generation sufficiency and capital costs • Ancillary Services Market • Maintains reliable operations of the power system Price setting • Electricity Market • Provides short-term reliabilityand economicalefficiency • Providesefficient allocation of load between power plants • Provides feasibility of electrical modes • Providesprice signalsfor consumption efficiency

5. Congestion management • Nodal pricinguses network model that includes transmission constraints • Mode feasibility is controlled at every stage of market procedures (SCUC (security constraints unit commitment) – Day-ahead market – Balancing Market) which allows to avoid overloading: • SCUCtakes into accountpredicted power system condition, interconnection condition and scheduled exchange, maintenance of generating and network equipment • Day-ahead markettakes into accountupdated power system condition, interconnection condition and scheduled exchange • Balancing Marketprovides reliable real-time operation of power system and interconnection coordination • Emergency control automatics provides protection against dangerous overloads of transmission lines and cuts

6. Distribution of reliability supporting processes and activities between market segments

7. Ancillary Services Types

8. Frequency control services: creating competition inmarket with lack of supply

9. Supply and demand curve Actual Demand Submitted proposals ∑ (Pi × Ri ×T) ≤ L, where Pi – unit price, rubles (per 1 MW of primary operating reserve provided for 1 hour) Ri – reserve provided by unit (MW) T – time of use, hours L – total cost of service limited by regulator, rubles i – number of units submitted Price, € Reserve, MW

10. Cost calculation methodology • Physically based – several tests on working equipment were conducted to study frequency control mode impact on equipment • Uses actual prices from equipment producers • Several types of costs are identified: • Capital costs – modernization of equipment • Operating costscaused by decrease of equipment efficiency • Operating costscaused by increase of failures and reduction of equipment durability • Operating costsresulting from additional equipment maintenance • Lost benefit in electricity market

11. Change in the number of participating units

12. Primary frequency control weight-averageprice dynamics* *Service price is a hourly payment for 1 MW of primary operating reserve

13. Reactive power service (using generators in synchronous condenser mode): a fair prices in the non-competitive market • Reactive power market: reactive power is supplied locally so usually one onlyprovider of the service exists in the area • Synchronous condenser modeis a specific mode that causes expenses for generator • There are no reliable methods for determination of economic impacts of reactive power control So cost-based pricing is used. The following factors are taken into account: duration of work in synchronous condenser, amount of energy consumed, prices in energy market, service quality.

14. Pricing characteristics • Service cost is calculated using simple unambiguous equation • Variables are measured hourly energy consumption and electricity market prices – e.g. completely verifiable values • Following costs are taken into account • Generator consumption • Excitation system and power plant auxiliariesconsumption • Energy losses • Costs of generator start (for thermal power plants) • Fixed rate of profit is included

15. Reactive power service implementation effect • Before: in 2009 synchronous condenser mode was usedon 69 unitsof 19 power plants: • 64 units of 14 HPP(of capacity up to 500 MW)and 5 units of 5 TPP(of capacity up to 200 MW) were used in synchronous condenser modefor 69 000 hours in total • 28 ofthese HPP and TPP units were usedin synchronous condenser modeformore than 1000 hours each • Synchronous condenser mode on one of HPP with 250 MW units was used for a total of 15000 hours • Service implementation • Two groups of applications of synchronous condenser mode usage were defined: reactive power control (which is payable service) and all other purposes (which are in the interests of power plant and non-payable) • Distinct criteria of necessity of synchronous condenser mode usage for reactive power control were formulated • After: in 2013 • 65 units of 9 HPP provided reactive power service usingsynchronous condenser mode for 14000 hours (in addition near 300 hoursof synchronous condenser modeusage for non-payable purposes took place) • Usage of TPP units in synchronous condenser mode was phased down • Expenses on synchronous condenser mode usage were reduced significantly

16. Conclusions • Reliability supporting activities in UPS of Russia are distributed between different market segments • Electricity and capacity markets provideefficient usageof network capacity, emergency control automatics is used in case of contingencies • Artificial competition inthe frequency control services market with lack of supply was created. This competition provides a strong incentive for further modernization of power plants’ units to meet the requirements for market participants so that we anticipate saturation of demand in 2015 • Cost-based pricing mechanism for non-competitive reactive power service was created. Reactive power control implementation resulted in optimized usage of generators operating in synchronous condenser mode

17. Thank you for your attention FedorOpadchiy fedor@so-ups.ru