ABSTRACT
Reserves and automatic generation control (AGC) are indispensable for power system operation. However, the costs of providing these ancillary services are not covered in active power markets. Therefore, we must find ways to compensate for these costs that consist of equipment sunk cost, operation and maintenance cost, or opportunity cost for providing energy and other services. In this section, we start with an introduction of the market-based reserve procurement model, then extend the model for AGC procurement, and finally combine them into an energy market. A compensation mechanism that does not rely on market solutions is also described. This compensation mechanism was originally adopted in Australia and later in the Zhejiang market in China and is discussed as an alternative.
