Offering of Variable Resources in Regulation Markets with Performance Targets: An Analysis

To date, wind and solar power plants have mainly provided energy. Going forward, with the application of appropriate controls, they can offer additional grid services, such as regulating reserves. Additional grid services can present an opportunity for additional value streams to wind and solar power plants. However, the additional value might not be realized when operator-determined performance targets and settlement adjustments for the delivery of regulation capacity are disregarded. This article studies the participation of variable resources in centralized regulation markets. We derive analytical results for regulation offers in terms of quantity and price considering that a variable resource does not want to risk being disqualified as a regulation provider, incurring losses, or foregoing more profitable opportunities. Our analysis suggests that U.S. operator-determined performance targets impose an upper bound on the quantity of a variable resource's regulation offer; and settlement adjustments for the delivery of regulation affect the price at which variable resources offer and the calculations of opportunity costs in case of imperfect regulation delivery.