FORWARD ANCILLARY SERVICES AUCTION-

SIMULTANEOUS APPROACH

- Crispino S. Sevilla
FORWARD ANCILLARY SERVICES AUCTION
1. Sequential Approach
- involves sequential computations in energy and ancillary
services markets in which the results of one market
would represent the starting point for the next market.

2. Simultaneous Approach
- involves the simultaneous computation of supply,
demand, and prices in all auction markets.
FORWARD ANCILLARY SERVICES AUCTION
Simultaneous Approach
However, some unexpected phenomena emerged after the
implementation of sequential approach…

 lower cost bids with higher value were not utilized.

 prices for lower quality services (e.g., replacement
reserve) were higher than those for higher quality
services (e.g., spinning reserve). This phenomenon is
called price reversal.
FORWARD ANCILLARY SERVICES AUCTION
Simultaneous Approach

To solve this problem

 CAISO redesigned the auction rules and proposed a

“rational buyer” auction that allows a simultaneous
auction of ancillary services and the substitution of a
higher quality ancillary service for a lower quality
ancillary service.
FORWARD ANCILLARY SERVICES AUCTION
Simultaneous Approach

 The rational buyer auction could reduce the price

reversal mechanism to some extent but could not avoid
it, but simultaneous auction with marginal pricing and
substitution can avoid it.
FORWARD ANCILLARY SERVICES AUCTION
Design Options for Simultaneous Auction

Figure 9.7 summarizes the different options for ancillary

services auction design.

These design options would enable the substitution of high

quality services for low quality services to reduce price
reversals.
FORWARD ANCILLARY SERVICES AUCTION
Design Options for Simultaneous Auction

Design options depends on:

 Objective of the auction and

 Settlement procedures in the auction.
FORWARD ANCILLARY SERVICES AUCTION
Design Options for Simultaneous Auction

 Objective of the auction

- minimize the social cost or minimize the procurement cost.

Social Cost - refers to the actual cost of the required

services.
Procurement Cost - refers to the cost to procure the
required services.
FORWARD ANCILLARY SERVICES AUCTION
Design Options for Simultaneous Auction

 Settlement Rule

Pay-as-bid Pricing
The market participants with accepted bids are paid
according to their bids.
FORWARD ANCILLARY SERVICES AUCTION
Design Options for Simultaneous Auction

 Settlement Rule

Uniform Pricing
All market participants with accepted bids would be paid a
uniform price regardless of their bids.
FORWARD ANCILLARY SERVICES AUCTION
Design Options for Simultaneous Auction

 Settlement Rule

Uniform Pricing
 marginal pricing
 substitution pricing
 demand substitution
 supply substitution
REFERENCE
1. M. Shahidehpour, H. Yamin, and Z. Li, MARKET OPERATIONS IN
ELECTRIC POWER SYSTEMS - Forecasting, Scheduling, and Risk
Management, John Wiley & Sons, Inc., 2002.
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