Enhancing Renewable Energy Integration through Regional Cooperation

The main sources of FRR in CAREC countries are hydropower plants and gas-fired thermal power plants (balancing reserve suppliers, or BRS). By enabling frequency regulation reserve procurement across borders, the region could save $230 million annually by 2030 in FRR operation costs. This would reduce reliance on expensive thermal power plants, in Kazakhstan and Uzbekistan, and increase the use of cheaper hydropower plants, in the Kyrgyz Republic and Tajikistan.^[2]

Europe has advanced experience in this area, including a regional security coordinator like Coreso in Western Europe and advanced mechanisms for integrating automatic frequency restoration processes, such as IGCC (International Grid Control Cooperation) and PICASSO (the Platform for the International Coordination of Automated Frequency Restoration and Stable System Operation).

A roadmap to establish a regional cooperation framework for frequency regulation reserve among the CAREC countries, drawing on Europe’s experience, would consist of four steps:

1. Planning the development of frequency regulation reserve facilities and interconnection transmission lines based on the region's long-term power development plans.
2. Multiple member countries agreeing on harmonized rules for frequency regulation reserve, including technical requirements, allocation methods, and settlement mechanisms.
3. Legalizing the procedures for cross-border frequency regulation reserve procurement within the participating countries, covering contracts, tariffs, and dispute resolution.
4. Endorsing the regional cooperation framework, which includes developing an operational handbook and establishing a regional security coordination center to facilitate the matching and settlement of frequency regulation reserve transactions among the participating system operators (SOs).

A customized trade model for cross-border FRR procurement for CAREC^[3] should account for the lack of established domestic balancing mechanisms in most participating countries.^[4] Under this model, each system operator will submit its frequency regulation reserve request and offer to the regional security coordination center beforehand (either a day or a week ahead). The center will conduct an auction to determine the procurement price and the allocation of FRR among system operators.^[5] The settlement will be implemented once the procured frequency regulation reserve is utilized on the day.

For the third step, the national legal framework must comply with the cross-border balancing procedure and multilaterally agreed technical rules, defining governance rules for validating new propositions or updating existing regional rules. Per the fourth step, the existing regional energy trading framework can be used to prepare a handbook for CAREC balancing operations, defining roles, responsibilities, operational procedures, and coordination mechanisms. The scope of the existing regional power system operator, CDC (Coordinating Dispatch Centre “Energy” of Central Asian Power System), can be expanded to include regional security coordination, monitoring, and ensuring the reliability and security of the regional power system.

Challenge 1: Lack of established balancing transactions between system operators and reserve suppliers

In most CAREC countries, frequency regulation reserve provision is mandated by law to power plants, which are either state-owned or have bilateral agreements with off-takers. These power plants do not participate in a wholesale market for frequency regulation reserve, so many countries are unfamiliar with the required financial settlement.^[6]

Solution 1: Introduce a transitional approach with a semi-market-based model and an auction scheme

A trade model using a semi-market-based strategy with a day-ahead wholesale market and an auction among SOs is ideal. This model simplifies the procurement process by fixing the traded FRR amount monthly, instead of optimizing it hourly based on simulation. This reduces complexity and the need for additional protocols and rules among the SOs. The model also uses an auction scheme to facilitate FRR price negotiation between SOs, based on the FRR cost benchmark in their own service areas. This considers the CAREC region's seasonal demand for local primary energy resources, such as gas and water, in sectors like heating and agriculture.

Challenge 2: Political climate

Power systems in some countries, such as Tajikistan and Turkmenistan, are not synchronized with the Central Asian Power System (CAPS). This limits the potential for frequency regulation reserve trade among CAREC countries.

Solution 2: Initiate the trade model among existing CAPS members and extend it later

The trade model can be implemented among countries already part of CAPS, such as Kazakhstan, Kyrgyz Republic, and Uzbekistan. This would demonstrate the benefits of frequency regulation reserve trade and encourage other countries to join CAPS and the trade model in the future.

Cross-Border Frequency Regulation Reserve Procurement Among the Stakeholders

SO = System Operators; BRS = Balancing Reserve Suppliers; CDC = Coordinating Dispatch Centre “Energy” of Central Asian Power System

All participating countries need to agree on unified rules, and this process can be more complicated for developing countries due to the lack of an established modern wholesale market structure and advanced tools. Here are ways to expedite the multilateral frequency regulation reserve trading agreement among the CAREC countries.

^[1] To respond promptly to changing VRE outputs, power grids are equipped with three types of regulation reserves, categorized by time frame: FCR (frequency containment reserves), FRR (frequency restoration reserves), and RR (replacement reserves). These are also called primary, secondary, and tertiary reserves. The common purpose of these reserves is to maintain grid frequency by balancing potential VRE output fluctuations. The difference lies in the timing and duration for which the reserve is required to be activated. The project/study targeted FRR, which is required to respond immediately after FCR and to last approximately 30 seconds to 15 minutes.

^[2] Further cost reductions can be achieved if all participating SOs require balancing reserve suppliers to be equipped with the automatic generation control (AGC) function. The necessary regional FRR amount could be reduced from 4.5 GW to 3.0 GW by mandating AGC, resulting in significant investment savings. This pre-programmed automated reserve-sharing scheme has been implemented in Germany (IGCC), where it has successfully reduced the required FRR capacity among the four regional system operators while increasing the share of VRE.

^[3] The proposed trade model activates the agreed FRR manually, i.e., via phone, while automatic activation is common in advanced countries where load frequency control systems with AGC are in place. The proposed manual cross-border activation of procured FRR is feasible in the CAREC countries, as this practice is common there and has not resulted in significant negative consequences. This arrangement is possible mainly because the number of BRS plants in the power generation subsector is limited, and the majority of the power plants are state-owned.

^[4] Common domestic balancing mechanisms in the CAREC region are like those in traditional regulated energy markets, i.e., unit commitment by state-owned power plants. This practice generally lacks clear financial settlement procedures, whereas advanced regions like Europe typically adopt balancing mechanisms, including settlements, through wholesale energy markets.

^[5] Balancing reserve suppliers do not join the auction directly but agree with their corresponding domestic system operators.

^[6] There was a trial of a cross-border balancing transaction between the Kyrgyz Republic and Kazakhstan. Before 2017, the Kyrgyz Republic agreed to participate in Kazakhstan’s balancing market under the Coordinating Dispatch Centre’s supervision. However, the contract ended in 2018 due to unresolved technical and financial issues.

Asian Development Bank. Regional Cooperation on Renewable Energy Integration to the Grid.