This paper proposes a Dynamic Regulation Market Mechanism (DRMM) that results in improved financial settlements for wholesale electricity markets. The DRMM dispatches control signals at the Tertiary Control (TC) level based on a co-optimization problem that jointly optimizes energy production and reserve capacity. At the Secondary Control (SC) level the DRMM dispatches control signals using an iterative algorithm that effectively eliminates steady state error in the system frequency. In addition to the overall DRMM remaining stable, the conditions under which it leads to improved financial settlements are described. Using a three area example, where each area corresponds to a modified IEEE-300 bus system, the control performance and the financial settlements are compared to standard SC. It is shown that the frequency response is nearly identical and that the make-whole payments, a performance metric associated with financial settlements, are smaller with the proposed DRMM.
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