Cooperation in ancillary services: Portuguese strategic perspective on replacement reserves

Abstract

Market cooperation in the electrical sector is crucial for competitiveness improvement. In the particular case of ancillary services, it was only carried out within a national context until the recent past. In the Iberian case, since the middle of 2014, a bilateral mechanism has allowed tertiary reserve sharing between the Portuguese and the Spanish Transmission System Operators (TSOs). This mechanism generates gains for the Portuguese electrical system. However, with a high level of cooperation, these gains could be improved. The Portuguese TSO is one of the most peripheral TSOs in Europe and, as such, it considerably benefits from market integration, in the various dimensions of the electrical sector. Hence, as a new contribution to earlier studies, this paper evaluates, from the Portuguese strategic perspective, what would happen to revenues when sharing replacement reserves without any restriction, considering a full integration of Europe's southwest countries in contrast to the traditional bilateral solution that is currently in place. The new methodology used in this paper is a cross-comparative evaluation between different bilateral combinations of TSOs' offers. A comprehensive study is presented and conclusions are duly drawn. Keywords: System operator, Ancillary services, Tertiary reserve, Electrical market integration