Bidding in Ancillary Service Markets: An Analytical Approach Using Extreme Value Theory

Abstract: To encourage the participation of stochastic distributed energy resources in Nordic ancillary service markets, the Danish transmission system operator, Energinet, has introduced grid codes requiring a minimum 90% reliability for the full availability of reserve capacity bids. This paper addresses the bidding strategy of flexibility aggregators under Energinet's reliability requirement by proposing a chance-constrained optimization model. An analytical solution is developed using ideas from extreme value theory, focusing on the "tail" of the empirical data used for flexibility estimation, capturing extreme events where failures are more likely to occur. The proposed model is applied to an electric vehicle aggregator participating in the Nordic market for frequency containment reserve for disturbances (FCR-D). Our results from a realistic case study show that the proposed analytical solution outperforms a commonly used sample-based approach in terms of out-of-sample constraint violation rate.