Lawrence Berkeley National Laboratory

Typically, in competitive electricity markets, the vertically integrated utilities that were responsible for ensuring system reliability in their own service territories, or groups of territories, cease to exist. The burden falls to an independent system operator (ISO) to ensure that enough ancillary services (AS) are available for safe, stable, and reliable operation of the grid, typically defined, in part, as compliance with officially approved engineering specifications for minimum levels of AS. In order to characterize the behavior of market participants (generators, retailers, and an ISO) in a competitive electricity market with reliabililty requirements, spot markets for both electricity and AS are modeled. By assuming that each participant seeks to maximize its wealth and that all markets cledar, we solve for the optimal quantities of electricity and AS traded in the spot market by all participants, as well as the market clearing prices for each.