806 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 16, NO. 4, NOVEMBER 2001 Practical Cost-Based Approach for the Voltage Ancillary Service Edson Luiz da Silva, Senior Member, IEEE, Jonathan J. Hedgecock, Member, IEEE, João Carlos O. Mello, Member, IEEE, and João Carlos Ferreira da Luz Abstract—The restructuring and deregulation of the electricity sector most noticeably involves the introduction of competition into energy supply. In parallel with this, however, there is an increasing desire amongst transmission system operators, gener- ators and consumers for commercial principles to be applied to transmission services, including the provision of voltage support and reactive power control. The identification of the costs of providing such services is an important first step toward devel- oping a transmission services market. Implementing a payment structure based on the remuneration of incurred costs can be an attractive option to commercial power sector players, who wish such costs to be recoverable at an appropriate rate of return, and system operators, who need to be assured of the availability of the necessary services. This paper addresses both the principles and practical issues involved in developing cost-based payments for reactive power, with reference to the ongoing restructuring of the Brazilian power sector. Index Terms—Ancillary services, deregulation, reactive power, transmission services, voltage support. I. INTRODUCTION T HE RESTRUCTURING of the electricity sector interna- tionally is perhaps most obviously characterized by major reorganization of the commercial arrangements under which energy is traded. The deregulation of electricity generation and retailing inevitably, however, introduces new paradigms to the planners and operators of transmission systems. In particular, special arrangements are required for dealing with ancillary services, i.e., services such as spinning reserve, ready reserve, black-start capacity and voltage support, which are essential for the operation of the transmission network but which cause sector agents to incur costs in their provision which are not readily identifiable within energy tariffs [1]–[3]. If these services are to continue to be made available in sufficient quantity to system operators, there are essentially two alternative approaches which can be adopted—either Manuscript received November 2, 1999; revised May 21, 2001. The work described was carried out under the auspices of a consultancy assignment led by PricewaterhouseCoopers. E. L. daSilva was supported by CNPq. Concepts and methodologies presented in this paper do not necessarily represent the position of the Brazilian ONS on this subject. Errors or omissions contained in this work are the sole responsibilities of the authors. E. L. da Silva is with the Federal University at Santa Catarina, Florianópolis, SC, Brazil (e-mail: edson@labplan.ufsc.br). J. J. Hedgecock is with Power Planning Associates, UK (e-mail: jonathan@powerplanning.com). J. C. O. Mello is with Administradora dos Serviços do Mercado Atacadista de Energia, BR (e-mail: joao@cepel.br). J. C. F. da Luz is with Operador Nacional do Sistema Elétrico, BR (e-mail: joaoluz@ons.org.br). Publisher Item Identifier S 0885-8950(01)09437-8. the introduction of tight technical regulations which require sector players to provide ancillary services, or the creation of a commercial environment which encourages the providers of the service through appropriate payments, as well as recovering the corresponding revenue from transmission system users. In this paper, we address both sides of the problem: i) how to pay the voltage support providers; and ii) how to allocate the incurred costs to the users. We address specifically the voltage support problem, which we discuss in the context of the ongoing restructuring of the Brazilian electricity sector. The Brazilian electricity transmission system is characterized by long transmission distances and significant levels of inductive demand, the combination of which leads to significant voltage control problems, which need to be addressed in the technical and commercial arrangements for the restructured electricity sector. This paper is organized as follows: Section II presents a description of the problem of voltage control in modern transmission systems. Section III identifies the costs associated for providing voltage support from the range of sources which is typically available. Section IV addresses the question of what sort of commercial arrangements are appropriate for incen- tivizing the production/absorption of reactive power. Section V presents the initial experience in developing recommendations for cost-based reactive power payments in Brazil, and Section VI draws some conclusions from this work. II. PROBLEM DESCRIPTION A. Background The control of the voltage profile of modern Electrical En- ergy Systems (EESs) is a complex task and expensive, due to the fact that increasingly these systems are being operated close to their technical limits. Up to now, due to the vertical structure of the electricity companies, there has been little need to iden- tify the costs incurred for providing voltage support. In the UK and elsewhere, there has been rapid evolution toward a market approach to the provision of reactive power. In those countries whose power sectors are at earlier stages of unbundling, how- ever, the continued provision of voltage control services can per- haps best be ensured by: • implementing appropriate technical regulations to require the provision of minimum levels of reactive power from key sources (particularly generation); • identifying accurately all the costs which are incurred by providers of reactive power, in order to set up commercial arrangements for recovering these costs in a transparent way. 0885–8950/01$10.00 © 2001 IEEE