IEEE Power & Energy Magazine - March/April 2021 - 85

A bottom-up approach can provide nuanced insights into the
incentive compatibility of alternative mechanism designs to foster
the participation of different, innovative technologies.
not obvious when viewed across multiple markets and technologies that may compete to provide different services.
An array of market and regulatory mechanisms is available to the policy maker, including mandatory licenses,
regulated monopoly provision, and organized markets. The
choice of mechanism, or a combination thereof, is a critical
policy decision, along with the delegation of responsibility to
the operating parties and the frameworks that guide providers and users' incentives.
One method to designing policy for system security is
through a top-down approach that begins with the economic
design that then flows down to system parameters and control
frameworks. However, this approach risks applying an economic framework that is inconsistent with the fast-changing,
underlying physics of the system. It also risks being bound,
unnecessarily and in some cases undesirably, to traditional
and established market constructs, which might be less
applicable to the new system dynamics being observed.
By contrast, a bottom-up approach begins with the physics of power networks. This approach can provide a more
granular appreciation of the economic characterization of
new security services that may be required during the lowcarbon transition. It can provide nuanced insights into the
incentive compatibility of alternative mechanism designs to
foster the participation of different, innovative technologies.

The Physical Characteristics
Informing the Economics
System security is a multifaceted concept and concerns
many different aspects of power system physics. It moves
well beyond the static or dynamic balancing of active and
reactive power, as could be appreciated from the previous
technical discussions. Increasingly relevant are the interactions among various physical parameters of generators, networks (and associated equipment), and load. Next, we highlight critical features of aspects of system security that can
inform their economic characterization.
✔ The multiplicity of provision: Unlike the classical delineation between the supply, transmission, and consumption of the electricity commodity, system security has a multiplicity of providers, which can include
generators, load, storage, and network equipment.
For example, inertia can be provided by synchronous generation and load, synchronous condensers,
and IBRs in a virtual or emulated form. This kind of
service is closer to a fast frequency response than to
synchronous inertia per se. This means that the promarch/april 2021

vision of services can also cross over between different industrial structures, such as between competitive
electricity supply and regulated network monopolies.
Hence, the designation of economic responsibility
for aspects of security takes on added weight and should
account for the efficiency of competitive provision, relative to the efficacy of regulated monopoly provision.
✔ Complex multiuse goods: Some physical parameters apply to the system as a whole, others are highly locational,
and, finally, others have both system and locational implications. Take the example of inertia, which is essentially
the kinetic energy stored in rotational turbines. While
much of the previous analysis has focused upon the impact of inertia on slowing the system-wide frequency
degradation, inertia is also important for local angular
stability and system strength. Furthermore, droop-based
PFR is relevant for frequency control but may also affect
oscillatory (small-signal) stability constraints. In economic terms, these are complex multiuse goods in addition to being technically complex services. Thus, any
design of system security frameworks must reflect the
full contribution of the good-to-system requirements.
✔ The rivalry and excludability of consumption: System services are often categorized as public goods.
Public goods are generally characterized by two features: 1) they are nonexcludable-users of the good
cannot be easily excluded from the enjoyment of the
good and 2) they are nonrival-where the consumption of the good by one user does not affect the ability of others to enjoy the good. While this may apply
to some security services, such as PFR services, a
closer examination of the underlying physics suggests
that not all system services neatly fit into the classification of public goods (see Figure 6). For instance,
some system services may be nonexcludable but display rivalry, especially under congestion, such as
fault current levels and voltage response. Also, other
services may be nonrival but excludable. An example
of this is tertiary reserves (sometimes called replacement reserves and linked to ramping and flexibility
reserves), where it may be possible to curtail users
that do not wish to pay for the product.
✔ The inseparability of goods: The provision of many
essential system services by synchronous resources is
inseparable. For example, the provision of inertia and
the fault current level support by a synchronous generator are inseparable. This means that the way in which
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IEEE Power & Energy Magazine - March/April 2021

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