An investigation of the Cost of Primary Regulation

Abstract: Primary regulation is essential to compensate for unplanned variations in production and consumption plans. The responsible for the availability of primary regulation is the system operator in each country. In Sweden contracted balance providers offer their accessible primary regulation weekly and hourly, to the system operator, to a price that will compensate the costs that derive from the primary regulation. This master thesis investigates the costs and the profitability of the primary regulation in a balance provider's perspective. The project was initiated by Fortum. The production plan is the result of an optimization based on spot price forecasts where the income is maximized. Primary regulation implies further constraints for the optimization model which give a different result. The difference in the result is due to the primary regulation and thereby an obvious cost caused by the same. Given the costs the bid and profit could be calculated. The thesis is based on optimization results for some small hydropower systems. These results gave the costs that have been evaluated and compared with the model recommended by the Swedish system operator Svenska Kraftnät. The results show the importance of the spot price, especially the difference in the spot price within the planning period. The inflow to the power plants is also an important parameter in a small reservoir, but it cannot be compared to the impact of the price. The optimal bid is hard to find, as the model does not count with the uncertainties in price and weather forecasts. It considers though the same parameters as the existing model, but with more exact values. To be sure that the primary regulation is profitable, using this model, a risk factor and investment costs need to be added.