294
2, MAY 2001
Reactive Power as an Ancillary Service
Kankar Bhattacharya and Jin Zhong
Abstract—This paper addresses the problem of reactive power
procurement by an independent system operator (ISO) in dereg-
ulated electricity markets. A reactive bid structure is proposed
in the context of a reactive power market. Based on the reactive
power price offers and technical constraints involved in reactive
power planning, a two-tier approach is developed to determine
the most beneficial reactive power contracts for the ISO. The
reactive capability of a generator and therefore the opportunity
costs in providing reactive power is also included in the model.
Uncertainty in reactive demand and in reactive bids of partici-
pating parties is incorporated through Monte Carlo simulations
and the expected reactive power procurement plan for the ISO is
hence determined. The CIGRÉ 32-bus network, approximately
representing the Swedish system, is used for the studies.
Index Terms—Ancillary services, deregulation, independent
system operator (ISO), Monte Carlo simulation, reactive power.
I. INTRODUCTION
I N A DEREGULATED power system, the basic responsi-
bility of the Independent System Operator (ISO) is to main-
tain system reliability and security by providing for ancillary
services such as reactive power support, spinning reserves, en-
ergy balancing and frequency regulation.
Sufficient reactive power support need to be provided in
the system in order to maintain the power flow limits on
transmission lines and voltage limits at bus bars. Also, since it
is not desirable to transport reactive power over the network,
it should be procured at different locations in the system
depending upon perceived demand conditions, mix of the
load and availability of reactive support devices. Such devices
however, have different characteristics for example, generators
are fast acting reactive support devices with high operating and
opportunity costs, while capacitors are slow devices with lower
installation and operating costs.
Many of the deregulated markets are yet to establish a mech-
anism for financial compensation for reactive power ancillary
services e.g., the Nordic countries. On the other hand, some
markets do have schemes for payment for reactive support ser-
vices. In UK, the National Grid Company, which carries out the
functions of the ISO, invites tenders for reactive support ser-
vices. The generators can bid for reactive power support through
bids composed of capacity components (price per MVAr and
quantity on offer) and an utilization component (MVAr-h price
curve). The selected bidders get into annual bilateral contracts
Manuscript received September 11, 2000. This work was supported by the
Sydkraft Research Foundation, Sweden, for the research project on ancillary
ervices pricing.
The authors are with the Department of Electric Power Engineering Chalmers
University of Technology S-41296 Gothenburg, Sweden.
Publisher Item Identifier S 0885-8950(01)03795-6.
0885–8950/01$10.00 © 2001 IEEE
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 16, NO.
with NGC and are paid for both the capability and utilization
components [1].
In the New York system, the ISO (NYISO) is responsible
for procuring reactive power support service, and the service is
provided at embedded cost-based prices. Generating resources,
which operate within their capability limits, are directed by the
ISO to produce or absorb reactive power to maintain voltages
within limits [3]. Further, the NYISO also provides for com-
pensation to generators in case of revenue lost due to increased
reactive power generation requests. If the ISO dispatches or di-
rects a generator to reduce its real power output the generator
receives a Lost Opportunity Cost (LOC) for the amount of rev-
enue it loses from the lost generation and energy sell.
The Australian electricity market and its ISO (NEMCO) also
recognizes reactive power as an ancillary service and financial
compensation is provided to generators and synchronous com-
pensators for their service provisions [4]. All reactive support
providers are eligible for the availability payment component-
for their preparedness to provide the service when called for.
Synchronous compensators also receive the enabling payment
component- paid when their service is activated by the ISO for
use. On the other hand a generator receives the compensation
payment component- which is based on its opportunity cost and
paid when it has been constrained from operating according to
its market decisions. For example if a generator has to provide
reactive power where it has to reduce its real power generation
in order to operate within the unit’s field and armature winding
heating limits, the generator will be compensated for its lost
real power generation. This payment component is similar to
the LOC payment made in NYISO.
These developments in the deregulated electricity markets in-
dicate the trend toward treating reactive power as ancillary ser-
vices and creating financial compensation schemes for reactive
power providers.
In the same context therefore, it is also important that the
ISO identifies its reactive power requirements and device ap-
propriate criteria for selecting the reactive power provider. For
example, procurement of reactive power involves payments to
be made by the ISO. Thus the ISO could seek those providers
which minimize its total payments. Although this is a seemingly
fair enough objective, this criterion could result in increased re-
active flows on the network and hence increased energy losses
in the system or even require curtailment of contracted trades.
Increased energy loss will require the ISO to procure loss com-
pensation services thus involving additional payments, which is
undesirable.
Complexities also arise when the ISO procures reactive power
from independent generators, which are business entities. If the
ISO requires such a generator to increase its reactive power, de-
pending upon the operating point, it might have to reduce its real
BHATTACHARYA AND ZHONG: REACTIVE POWER AS AN ANCILLARY SERVICE
Fig. 1. Synchronous generator capability curve.
power generation in order to adhere to the field current limits in
the rotor. With this backing down of generation, the generator
will not be able to fulfill the contracted trades.
In this paper we attempt to determine an appropriate scheme
applicable to the ISO for procurement of reactive support from
independent providers.
II. GENERATOR REACTIVE POWER CAPABILITY
The power output of a generator is usually limited to a value
within the MVA rating by the capability of its prime mover.
When real power and terminal voltage is fixed, its armature and
field winding heating limits restrict the reactive power genera-
tion from the generator. The armature heating limit is a circle
with radius , centered on the origin , and
given by,
(1)
The field heating limit is also a circle, centered at
, radius and given by (2)
(Fig. 1) [5]
(2)
is the voltage at the generator terminal bus, is the steady-
state armature current, is the excitation voltage and is
the synchronous reactance. and are real and reactive power
generation from the machine, respectively. The machine rating
in MVA, is the point of intersection of the two circles (“ ” in
Fig. 1). The corresponding real power generation is denoted by
. When the limit on reactive power is imposed by
the generator’s field heating limit (2) while, when
the armature heating limit (1) imposes restricts the generators
reactive power output. There is also an under-excitation limit,
, to restrict the unit operation in under-excited mode due
to localized heating in the end region of the armature.
Consider the operating point ( ) on the limiting
curve defined by (2). If more reactive power is required from the
unit, say , the operating point requires shifting back along
the curve to point ( ), where . This signifies
that the unit has to reduce its real power generation to adhere to
field heating limits when higher reactive power is demanded. It
295
Fig. 2. Generator’s expectation of financial compensation.
will hence incur revenue loss (RL), which needs to be compen-
sated net of its cost savings from reduced generation, expressed
as follows:
RL (3)
where, is the real power price, and is the generation cost
as a function of production.
If the operating point lies inside the limiting curve, say at
( ) then the unit can increase its reactive generation
from up to without incurring any additional cost, rev-
enue loss or real power generation shift.
III. REACTIVE BID STRUCTURE
In many deregulated markets, the ISO has a limited access
to information on generators and hence may not be able to de-
termine a generator’s revenue loss, which requires information
on real power price (sometimes bilaterally fixed) and generator
cost function. An appropriate option in such markets is to call
for reactive bids from generators.
We discussed regions on the reactive power coordinate in the
previous section, which are now explicitly defined here to for-
mulate the generator’s expectation of payment function. From a
knowledge of generators expectation of payment, the ISO can
call for reactive bids from all parties.
Region-I: : Reactive power
output in this range is used by the generator to meet its own
requirements such as in boiler feed pump motors, circulating
water system pump motors, ID fan and FD fan motors, step-up
transformers, etc. The generator is not entitled to receive any
payment for reactive power generation in this range.
Region-II: : This region denotes
the reactive power that a generator provides over without
rescheduling its real power output. Though there is no increased
cost due to the additional reactive output, the generator expects a
payment for making available its service. This payment is made
at a constant rate on a per MVAr basis, and analogous to the
capacity charge.
Region-III: : This region denotes
the reactive power which a generator supplies, at the expense
of reducing its real power output. The generator stands to lose
revenue from loss of power sell. The payment that the generator
expects from the ISO for this reactive support service will be
proportional to the amount of reactive support it provides and at
a rate determined by its revenue loses as given by (3).
A typical expectation of financial compensation function can
accordingly be shown as in Fig. 2. As seen from Fig. 2, the
296 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 16, NO. 2, MAY 2001

financial compensation and vis-á-vis the reactive bids called for, Subject to the Following Constraints:
by the ISO, will require being in two parts, a constant term and Load Flow Equations:
one proportional to reactive power.
This can be expressed mathematically as follows: (6)

(7)

gen (4)
is the bid-price from an independent generator , is
the fixed component of bid price in $/MVAr and is the
variable price proportional to reactive support provided in
$/MVAr/MVAr. It is to be noted that unlike the usual two-part
tariff structures, the above bid structure is different since the
variable component payment is applicable only after complete
utilization of reactive capacity from the constant price bid
component.
IV. REACTIVE POWER PROCUREMENT
With a reactive bid structure established, the ISO requires a
proper criterion to determine the best offers and hence formulate
its reactive power procurement plan.
Unlike real power markets where bids are selected in
ascending order of prices, reactive power markets need to
incorporate the location aspects also. For example, a low priced
reactive bid at a bus remotely located, is not an attractive
option for the ISO. Such a reactive support may prove to be
detrimental for the system while also increasing transmission
losses.
Therefore the ISO needs to consider both the technical
aspects involved in reactive support allocation as well as the
bid price offers from parties and arrive at an optimal contract,
best suited to the system. A two step approach proposed and
presented below to address this problem:
Step-I: The ISO determines the marginal benefit of each
reactive bid with regard to system losses. The ISO
shall seek to minimize losses lest, it would require
to procure higher loss compensation services (also
involving payments).
Step-II: With the marginal benefit of each reactive bid
known to the ISO, it seeks to maximize a societal
advantage function (SAF) formulated by incorpo-
rating the price bid offers at this stage.
A. Marginal Benefit from a Reactive Support Service
The marginal benefit to the system from one unit of reactive
support at a bus from a reactive bid can be determined from
the duals of the system constraints applied to appropriate OPF
models representing the grid. Consider the following modified
OPF:
Minimize: System transmission losses given by,
(5)
is the conductance of line , p.u.
bus voltage, p.u.
voltage angle, radians.
Contracted real power generation at bus , p.u.
Actual real power transaction between load at bus
and generators, gen
Reactive power support at bus , p.u
Reactive power demand at bus , p.u
Element of network and admittance matrix, p.u
Angle associated with , radians
Bus Voltage Limits:
(8)
Limit on Bilateral Transactions:
(9)
is the contracted real power transactions by a load at
bus with a generator .
The bilateral transactions are modeled using the method dis-
cussed in [6].
Reactive Power Capability Limit of Generators:
(10a)
(10b)
Equation (10a) is applicable when the field heating limit acts as
the upper limit (i.e., for ) and (10b) when the armature
heating limit is applicable (i.e., for ).
Lower Limits on Reactive Power Generation: As mentioned
in Section II, the under-excitation limit, , is fixed a priori
and hence the lower limit of reactive power generation is gov-
erned by the constraint,
(11)
1) Duals Associated with Reactive Power Constraints: For
the modified OPF described by equations (5)–(11), we use
three sets of lagrange multipliers associated with the three
reactive power constraints (7), (10), (11) to derive important
conclusions.
a) : Dual of Reactive Balance Constraint: This param-
eter is obtained from the dual of the reactive power balance (7)
and denotes the sensitivity of the system loss parameter to reac-
tive demand changes at a bus.
is in units of MW/MVAr denoting the change in MW loss
per MVAr change in reactive demand. is multiplied with a cost
parameter (in $/MW) denoting the valuation of reduced loss,
to obtain the marginal benefit. Thus the marginal benefit to the
ISO from a change in reactive demand at a bus is given by,
MB in /MVAr (12)
BHATTACHARYA AND ZHONG: REACTIVE POWER AS AN ANCILLARY SERVICE
b) : Dual of Generator Reactive Capability Con-
straint: When the generator is operating at its reactive
capability limits, it is of interest to know how the system will
benefit if it chooses to increase its reactive generation beyond
this point. The dual of the constraint (10a) and (10b) obtained
while minimizing system loss provides important information
on these lines.
Thus, indicates by how much the system loss will
change for a unit change in generator reactive power capability.
indicates that the reactive power generation is below
that specified by the field/armature current limits (i.e., if
, ). If , it indicates that the system
losses will reduce if reactive generation at the bus is increased
(i.e., ), which is only possible by reducing real
power generation. If , it indicates that the system losses
will increase if reactive generation is increased It is then not
desirable to provide additional reactive power by reducing real
power generation.
The marginal benefit to the ISO from a generator supplying
reactive power at its field/armature winding heating limit is
given by,
MB /MVAr (13)
c) : Dual of Reactive Power Constraint on Lower
Limit: This parameter is the dual associated with reactive
constraint (11) applicable to reactive lower limits. Therefore,
MB /MVAr (14)
B. Societal Advantage Function of the ISO
Marginal benefit (MB) for reactive support at each bus, and
bid parameters and for each reactive power provider, is
now available to the ISO. Then, we can define the composite
advantage function for the ISO as follows:
SAF
(15)
and represent regions II and III mentioned in
Section III, respectively. SAF in (15) represents the ISOs
viewpoint, seeking contribution to system performance (in
terms of loss reduction) from reactive power providers with
lowest possible cost.
C. SAF Maximization: Reactive Power Procurement
Once the ISOs composite advantage function is constructed
as in (15), the optimal reactive power procurement plan can be
obtained from a second level model constructed using the infor-
mation now available.
Maximize: Societal Advantage Function given by (15).
Subject to the Following Constraints:
Load Flow Equations: [Equations (6) and (7)]
Bus Voltage Limits: [Equation (8)]
Limit on Bilateral Transaction: [Equation (9)]
297
Reactive Power Generation Limits: In Section IV-A we con-
sidered that the upper limit on reactive power is constrained by
the field or armature heating limits. Now we consider that the
generator is willing to reduce its real power output from to
(refer Fig. 1) in order to provide higher reactive power (for
a price). The constraint (16) states that the maximum reactive
support available from a generator is for an operating point,
(16)
Reactive Power Generation Limits: According to the three
regions on the reactive power domain, discussed in Section III,
the reactive power output from a generator can be classified
in any of the three components: , or , to represent re-
gions I, II or III, respectively. The governing algebraic relations
between them can be written as follows
(17)
(18)
(19)
, and are binary variables for the discrete selection
of a reactive component from any of the three regions. Ac-
cording to (19) only one of the binary variables can be selected.
This automatically restricts that can be in only one of the bid-
ding areas shown in Fig. 2.
V. RESULTS AND DISCUSSIONS
The Swedish 32-bus test system [7] (Fig. 3) is used in this
work to evaluate the optimal reactive power procurement plan
for the ISO. The system consists of four major areas:
• North—with basically hydro generation and some load.
• Central—with a large amount of load and rather large
thermal power generation.
• Southwest—with a few thermal units and some load.
• External—connected to the North. It has a mix of genera-
tion and load.
A. Step-I: Obtain MB from Reactive Support at a Bus
The marginal benefit from reactive power support at a
bus is obtained by solving the modified OPF discussed in
Section IV-A. The model is a nonlinear programming problem
and is solved using the high-level programming platform
GAMS and nonlinear programming solver MINOS-5 [8].
, and associated with each generator’s reactive power
constraint, and discussed earlier in Section IV-A-1, is listed in
Table I. The corresponding marginal benefits are determined
from , and and (12)–(14), assuming /MW.
The optimum reactive support, , which evolves from the
model solution, is also shown. Either the field or armature
winding heating limit, according to the operating condition,
specifies the upper limit while the lower limit is
fixed apriori. Accordingly, either or assume a nonzero
value if touches the upper or lower limit, respectively. The
298
Fig. 3. CIGRÉ-32 bus test system network configuration.
TABLE I
MARGINAL VALUES AND OPTIMAL REACTIVE POWER SCHEME
Lagrange multipliers are zero if lies between the range of
and . Therefore, the reactive power support plan
which evolves in Table I adheres to the field/armature heating
limits.
The ISO achieves a minimum transmission loss with the
above reactive power procurement plan. However, if the
associated bid price of respective reactive power support is
accounted for, we see that the ISO ends up with a very high and
negative societal advantage value from the above plan. This is
not desirable from the ISO’s viewpoint in deregulated markets.
IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 16, NO. 2, MAY 2001
TABLE II
REACTIVE POWER PROCUREMENT PLAN AFTER FINAL OPTIMIZATION
B. Step-II: Final Optimization
The second stage of optimization therefore seeks to find a
compromise between the technically best and a financially safe
solution for the ISO. Marginal benefits and offered bid prices
are used in the final optimization that seeks to maximize the
SAF (15). This problem (stated in Section IV-C) is a mixed-
integer nonlinear programming problem and is solved using the
GAMS/DICOPT solver. GAMS/MINOS5 and GAMS/XA are
invoked by DICOPT as the nonlinear programming and integer
programming solvers, respectively.
The optimal reactive power procurement plan obtained after
the second step is listed in Table II. Note that now the reac-
tive power plan at certain buses exceeds (at buses 4071,
4062, 1012 and 1022). These generators will require reducing
their real power output to provide the additional reactive power,
and will be compensated as per the bid price. When falls in
region-III (ref. Section III), we desegregate in two compo-
nents, and . denotes how much it provides within the
reactive limits, and shows how much it provides above its
reactive limits (by reducing real output).
The solution yields a positive and fairly high societal
advantage for ISO. As expected, the system bears a higher
transmission loss from this reactive power procurement plan
since this plan is financially safe for the ISO.
C. Uncertainty in Reactive Demand and Bid Price: Monte
Carlo Simulation
The solution obtained in Section V-B assumes a particular
load condition and a given set of reactive bid prices. Understand-
ably, the solution obtained is a biased solution depending on the
nature of input information.
Monte Carlo simulation is used to model the uncertainty
associated with the demand and bid prices. If the distribution
form of uncertain parameters is known, the expected behavior
of the system can be studied by averaging the outcomes of
different simulation cases. Among the advantages of Monte
Carlo simulation is its conceptual simplicity i.e., each simula-
tion exercise (or sampling) can be viewed as a possible state of
system operation.
The reactive demand and bid prices have been assigned a
range of variation, a normal distribution for the former and an
uniform distribution for the later. Simulations are carried out
over the range of uncertainties and the expected outcome is eval-
uated by averaging over the entire simulation samples.
BHATTACHARYA AND ZHONG: REACTIVE POWER AS AN ANCILLARY SERVICE
TABLE III
OPTIMAL SOLUTION WITH UNCERTAINTY IN REACTIVE DEMAND
Fig. 4. Expected reactive power on bus 4072 with uncertain reactive demand.
1) Uncertainty in Reactive Power Demand, : A normal
distribution is considered for simulating the reactive demand
uncertainty. Bid prices are held at their nominal values during
this case. The optimal solution is obtained for each Monte
Carlo simulation sample using the two-step approach discussed
in Section IV and shown in Sections V-A and V-B.
The expected reactive power procurement plan is given in
Table III while Fig. 4 shows the solution convergence to the
expected value with increasing sample size of Monte Carlo
simulation. The reactive power procurement at bus “4072”
converges to 0.49 p.u.MVAr in a Monte Carlo simulation with
200 samples.
The expectations in Table III are somewhat different from
the single simulation solution shown in Table II. The expected
system loss is less and the expected societal advantage is more
than the single simulation case. This indicates that the single
simulation case was a typically high reactive demand case sim-
ulated. Over a range of reactive demand, the solution converges
around the expectation values, shown in Table III.
2) Uncertainty in Bid Price Parameters, and : The
uncertainty in and is assumed to be uniformly distributed
over a range. The expected optimal solution is given in Table IV
and Fig. 5 shows the solution convergence to the expected
value with increasing sample size of Monte Carlo simulation.
Reactive power procurement at bus “4072” converges to
0.29 p.u.MVAr with a sample size of 400.
The expectations in Table IV are somewhat different from the
single sample solution of Table II. However, the solution is quite
close to the Monte Carlo simulation solution in Table III with
299
TABLE IV
OPTIMAL SOLUTION WITH UNCERTAINTY IN BID PRICE
Fig. 5. Expected reactive power on bus 4072 with uncertain bid prices.
reactive demand uncertainty. The large sample size with Monte
Carlo simulations smoothens the otherwise biased single input
and introduces a fairness in the solution.
VI. CONCLUSION
Procurement of various ancillary services is a complex issue
for the independent system operator in deregulated electricity
markets. Among various factors that need to be considered, are
the benefit to the system from a particular service-in terms of
system security, economics and reliability, and the cost of the
service in terms of payments to be made to the service providers.
In this paper we discuss the procurement of reactive power sup-
port. The benefit from reactive support at a bus is determined
using the dual of the reactive power constraints. It is seen that
the ISO tends to procure reactive power support from those
providers, which provide the best societal advantage, i.e., have
high marginal benefit from the service with price bids within
acceptable ranges. Understandably, as the bid prices reduce, the
reactive power selection plan changes. Similarly, the marginal
benefit function also has a role in deciding the reactive power
procurement plan.
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[3] New York Independent System Operator, NYISO Ancillary Services
Manual, 1999.
300
[4] National Electricity Market Management Company (Australia), “Na-
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[5] A. E. Fitzgerald, C. Kingsley, and S. D. Umans, Electric Machinery,
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IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 16, NO. 2, MAY 2001
Kankar Bhattacharya received the Ph.D.degree from I.I.T. New Delhi in 1993.
During 1993–1998, he was in the faculty of IGIDR, Bombay. Since 1998, he is
with Chalmers University of Technology, Sweden. His interests are in power
system dynamics, economic operations and deregulation issues.
Jin Zhong received the B.Sc. degree (Eng) from Tsinghua University, China in
1995 and the M.Sc. degree (Eng) from Electric Power Research Institute, China
in 1998, where she continued as a Researcher till 1999. Currently, she is a Ph.D.
student in Chalmers University of Technology.