Co-optimization of the day ahead electricity market andancillary services

The Turkish electricity market has undergone several reforms in the current decade and continues to develop the current system to satisfy markets needs with transparency, integrity, and competition in accordance with the supply and demand side. In the current system, participation in Ancillary Services (AS) is voluntary. In this case, a significant increase was observed in the Primary Frequency Control (PFK) and Secondary Frequency Control (SFK) unit prices under AS compared to the previous ancillary services regulation, which required the participation of some generation units. Thus, the provision of frequency control has become more costly for the system operator. On the producers' side, the amounts reserved under ancillary services cannot be traded in any other market except AS. If the bids made by market participants participating in the AS are not accepted, the participants tend to bid at a higher unit price in Day Ahead Electricity Market (DAM) in order to offset portfolio returns. In such a scenario, the average market clearing price increases if the bid with higher unit electricity price is accepted. If the bid is not accepted, the participant loses money. Hence, suppliers are subject to default risk in both market, and acceptance in just one market is not profitable. At his point, in order to alleviate the burden that production units face in both DAM and AS we propose a new market structure to give a solution to supply-side default risk problem and high frequency control cost in system operator side . In this study, we combined the DAM and AS to contribute the ongoing liberalization process of Turkish electricity market. These two separate markets have different optimization models with different objectives. Our new optimization model combines these two separate markets with a co-optimization algorithm for the sake of efficiency, integrity, competition and risk management. In this new market framework, we introduced a new bid type for the supply side named "mixed block bid". In the current bid structure, a bid consists of price, quantity and time zone information. In the proposed block bid structure, a mixed block bid consists of energy price, energy quantity, reserve price, reserve quantity (corresponding to the maximum oscilation quantity that the production unit increase or decrease its production in real-time when needed) and time interval attributes. With the help of new market structure, we aim to decrease default risk and encourage suppliers to give more efficient bids. On a rational basis, there is a relationship between default risk and unit electricity marginal cost of the supplier reflecting the risk premium. Theoretically, when the default risk is reduced, suppliers are supposed to reflect this decrease in default risk as a discount in risk premium and hence a discount in the unit electricity price. Moreover, with the newly introduced mixed block bid structure, suppliers which are not alloved to bid in Ancillary Services becauase of their capacity constraints can also be employed to give offer to cover demand fluctuation. Since every supplier has different marginal cost of production, non-homogeneous production units can be more helpful in the procurement of needed quantity in the Ancillary Services with less amount of money. Lastly, since system operator will forecast the demand fluctuation for a near future, forecast errors are supposed to decrease. The new optimization model is mixed-integer nonlinear programming (MINLP) clearing energy prices (MCPs) and reserve prices (PFC prices) and finds accepted quantities for energy and reserve market.