Ancillary Service FAQ
1. How are ancillary services procured?
2. How do I get paid for providing operating reserve?
3. What is equilibrium pricing?
4. How are premium and activation prices determined?
5. What is NGX/Watt-Ex?
6. Can all products be traded using Watt-Ex?
7. What is considered on-peak and off-peak?
8. How do I get a TMR contract?
9. How are prices determined for TMR contracts?
10. What is the WECC?
11. In today’s operating reserve market the AESO is the single buyer. Does this put the AESO in a conflicting position?
12. How often are units conscripted to provide operating reserve?
This depends on the type of ancillary service. Operating reserve is procured over a day-ahead trading platform (Watt-Ex).
Other ancillary services are procured using bilateral contracts. The AESO is committed to using a fair, efficient and openly competitive procurement process for ancillary services whenever possible. For more information on the AESO’s procurement process please see: http://www.aeso.ca/files/ASProcurementProcess.pdf
For operating reserve procurement facilitated through the Alberta Watt Exchange Limited (Watt-Ex), the AESO receives an invoice from Watt-Ex and financially settles with Watt-Ex. Watt-Ex then facilitates the settlement process with individual operating reserve service providers.
Equilibrium pricing is used in the procurement of ACTIVE operating reserves that are transacted through Watt-Ex. Also known as the trade price, the equilibrium price is the average of the difference between the bid and the marginal offer.
= (Bid + Marginal Offer)/2
The marginal offer is the offer that satisfies the volume of operating reserve required. For example if 100MW of reserve is required and the offers for the reserve were:
Offer 1: 10MW at -$10
Offer 2: 30MW at -$5
Offer 3: 40MW at $0
Offer 4: 10MW at $5
Offer 5: 10MW at $10
Offer 6: 25MW at $15
Offer 7: 30MW at $20
Then the marginal offer would be $10 (Offer 5) – that is the offer that provides the final volume required to make up the 100MW of volume– In this example the aggregate of offers 1 through 4 sum to 90 MW (which is 10MW short of the required 100MW), then offer 5 (10MW) combined with offers 1 through 4 sums to 100MW, our required volume. Offer 5 was the offer that filled the final portion of our required volume and therefore it is considered the marginal offer.
The bid is the maximum price that the AESO is willing to pay for the reserve. The equilibrium price then calculates an average between the difference of the AESO’s bid and the marginal offer. The equilibrium price is then used to calculate what the reserve providers receive as payment for their reserves. All providers receive the equilibrium price plus the hourly pool price for the period they are providing.
The premium price is the price/MW that a stand-by operating reserve provider is paid for making reserve power available for a possible dispatch. The activation price is the price/MW a stand-by operating reserve provider is paid if the reserve they have made available is dispatched.
The AESO clears the standby market using a blended price formula, which ranks the standby offers based on the following algorithm:
Blended Price = Premium + (Activation % x Activation Price)
Activation percentages are based on historical product activation rates for on and off peak hours.
In the standby market, sellers submit offers with an activation and premium price. Offers are ranked based on blended price and the lowest blended priced offers that fulfill the AESO’s volume requirements are accepted.
NGX stands for Natural Gas Exchange. They are the organization that operates Watt-Ex – the trading platform that is used to procure operating reserve. For more information on NGX please visit their website.
All operating reserve products are traded on Watt-EX. Other ancillary services are typically procured using a competitive RFP process. See “How are Ancillary Services procured?” (Above)
In the operating reserve market we refer to a period of time in the context of hour ending using the 24 hour clock. For example, the period of time, 5pm to 6pm is referred to as HE18 (HE=hour ending), and 1am to 2am is referred to as HE2.
On-Peak: HE 8-23
Off-Peak: HE 1-7 and HE 24
AM super peak: HE 6-8
PM super peak: HE 17-24 in November, December and January and HE 18-24 in all other months
These definitions apply to all 7 days of the week.
Given the location-specific nature of TMR, only a small number of generating units in Alberta are needed to provide this service. The AESO contracts with these units when long-term requirements for TMR are identified.
Contracts for TMR are negotiated on a case by case basis and the terms and conditions of each contract, including price are set at that time.
The Western Electricity Coordinating Council (WECC) is the regional entity responsible for coordinating and promoting bulk electric system reliability in the western interconnection. The WECC provides an environment for coordinating the operating and planning activities of its members. In addition the volume of operating reserve that the AESO procures is determined by reliability standards set by WECC, of which the AESO is a member. For more information on WECC please see their website.
The AESO has been operating a market for the procurement of operating reserve products – specifically regulating, spinning and supplemental reserves – since 2001. While a number of features of this early market design have worked, there have been long standing issues including the impact of the AESO's active participation in the market as well as some contract terms. To evaluate the state of the OR market and commence discussions about how to improve the market framework, the AESO initiated a market redesign project. Please see the Operating Reserves Market Redesign page for more information.
Historically, out of market operating reserves have been required on approximately 5 days each year, typically for the duration of 1 or 2 hours.