The Importance of Conventions

The Independent System Operator (ISO/CENACE) was established on Aug. 28, 2014 by a presidential decree as a decentralized public federal organism, sectorized under the Energy Ministry with its own heritage and legal personality. The objective of the ISO is to operate the national electric system and the wholesale electricity market (WEM), while guaranteeing the open and not unduly discriminatory access to the national distribution and transmission grid.

The operation of the WEM states that the ISO is in charge also of calculating the prices of the transactions done under the market structure, basing those calculations on the offers the ISO receives from the market participants, according to the Market Basis Rules. The Market Basis Rules, issued by the Energy Ministry on Sept. 8, 2015, stipulates in basis 8, subsection 8.1.2 that the economic dispatch will be solved considering security restrictions. In other words, the economic dispatch will be calculated while the transmission and the system’s operational limits are observed. 

To better understand the Mexican economic dispatch model and the WEM, let’s first look at its multinodal structure. The definition of a node, under an engineering definition, is a group of electrical elements with a common connection and an impedance that could be assumed or approximated to zero. In other words, the nodes in which the WEM is divided are the smallest pieces in which the behavior of the Mexican electric system may be described. 

According to the WEM Basis Rules, there are three main types of nodes: the C Nodes, which represent the physical connectivity of the grid; the F Nodes, which are the invoicing/billing nodes; and the P Nodes, which are the price nodes. This last node has a Locational Marginal Price (LMP) associated to each P Node. The LMP is one of the results of the economic dispatch. The WEM is a multinodal market, this means that it has many P Nodes allowing the ISO to solve the economic dispatch problem more precisely and reliably. This multinodal structure also allows the ISO to send accurate price signals to the market participants, reflecting thoroughly with these price signals the “needs and lacks” of the electric system.

The LMP by design communicates the lack or excess generation on a given P Node and vice versa from the point of view of a load. It also sends information about the lack of transmission infrastructure and, therefore, the ability of one zone to import energy from or export to other zones. The latter is always in line with the physical and technical limits of each of the elements that constitute the WEM.

The economic dispatch will look for the system’s optimization through a dual-optimization algorithm that uses restrictions on the transmission lines while solving the energy and reserves (ancillary services) needs at the same time. According to basis 9, subsection 9.1.8, the economic dispatch is designed with the sole objective of minimizing the system’s generation costs subjected to the operational restrictions of the system. Along the operational restrictions, the balance of energy extractions and injections on each node is included among other variables such as generation, consumption, energy transmission from each of those nodes to the neighboring ones and the minimum reserves requirements. The reserves or ancillary services recognized in the Basis Rules are:

1. Secondary frequency regulation reserve
2. Spinning reserves
3. Non-spinning reserves
4. Supplementary spinning reserves
5. Supplementary non-spinning reserves 

Each of those reserves are of fundamental relevance for the ISO because the mix of different time responses of each of the reserves helps it to overcome the gradual and sudden changes in demand inherent to an electrical system behavior. The difference in time response among the different technologies of the Mexican generation matrix is not enough; a good granularity in the reserves allocation is also needed, such as the granularity of previously described P Nodes. This allows the ISO to operate the system under better circumstances, making it more reliable and secure.  

When the Basis Rules were enacted, five different types of reserves and four reserve zones were provided (Figure 1) within the Interconnected National System (SIN), with the final goal of giving the ISO enough granularity on the reserve allocation. That is, that the ancillary services prices and allocation embedded transmission restrictions between the different zones.

From May 24, 2018, the four-reserve zone convention changed to only one zone (Figure 2). This change has the underlying objective of giving the ISO the ability to comply with the minimum operational reserves’ requirement stated int the market rules. Specifically, the creation of one zone allowed the zones that possessed a surplus of reserves to compensate the reserves zones that had a lack.

This change was necessary because back then, the generation matrix had a limitation on the operational reserves (spinning, non-spinning and secondary regulation reserves). In plain English, the system’s flexibility wasn’t enough in each of the previously defined reserve zones, which makes it impossible for the ISO to comply with the minimum volume on each of those zones.

Consequently, the one-reserve zone convention opened the possibility that in the event of an outage or of a sudden loss of a big transmission element shared by two or more zones, it may affect the delivery of those reserves allocated in a zone that possesses a surplus and could compromise the entire system’s operational parameters. The latter, caused by a “regional” lack of reserves that won’t have enough flexibility to quickly balance the generation-demand ratios, leads to a destabilization of the operational parameters. 

To visualize the phenomena explained before, historical and public information was analyzed (Figures 3 & 4). Figure 3 shows the ancillary services allocation for 2017. This was done under a four-zone convention. It is divided by zone and type of ancillary service. Figure 4, separated on items A & B, shows:

1. Item A, the historical evolution on the MW allocated in each of the four reserve zones
2. Item B, shows the reserve allocation by type under the unitary reserve zone criteria, from May 2018 to December 2020

Both in Figure 3 (2017) and Figure 4, item B shows the supplementary reserve distribution during the 2018-2020 period is greater than the spinning reserves, demonstrating a growth tendency in this differential as time passes by. It is observed that the spinning reserves decreased while the supplementary increased. This could mean that the system’s flexibility was diminished during this period, showing that the resilience of the system against a sudden loss of an element was decreased as well.

Its important to note that the secondary regulation reserve is associated with the capability that some power plants can deliver energy almost instantly through the use of automatic generation controls (AGC), which means that the new or modern power plants are the only ones that can offer these kinds of ancillary services, making them scarce due to the advanced average age of the Mexican thermal power plants. 

As previously discussed, the more granular the information the ISO has allows it to operate and optimize the ancillary services by having a better sense of the seasonality of the demand and congestion variables.    

From 2018 to 2020 there were a lot of additions of new thermal power plants, which can be controlled by an AGC. This should have increased the Mexican thermal generation matrix to offer more operational reserves. The problem is that the allocation of those power plants is limited by the transmission constraints, making those critical variables to the system’s energy and reserves allocation. The latter should have given the system more flexibility, allowing the ISO to use the four-zone convention again and enabling it to allocate these reserves while complying with the requirements established in the market rules.

Doing so, the system will recover its ability to quickly react and to provide more accurate price signals, giving precise information to market participants on where and which kind of reserves are needed the most.

The ISO needs the most accurate and best information available, but it is just as important that it has the necessary granularity, conventions and resolution of the economic dispatch model to operate the system under the security, reliability and continuity principles that are stipulated in the Electricity Industry Law. This “state of the art” information and criteria will make the system’s operation more robust and resilient against future sudden outages.  

The sole purpose of this document is to explore, through the analysis of public historic information the different kinds of reserves, the advantages, and disadvantages of operating the interconnected electric system under different Reserve Zones’ conventions.

For this article, Diego Blumenkron enjoyed the contribution of his colleagues Francisco Zurita, Alejandro Dávila and Adriana Ramos.