Optimal policies for simultaneous energy consumption and ancillary service provision for flexible loads under stochastic prices and no capacity reservation constraint

Flexible loads, i.e. the loads whose power trajectory is not bound to a specific one, constitute a sizable portion of current and future electric demand. This flexibility can be used to improve the performance of the grid, should the right incentives be in place. In this paper, we consider the optimal decision making problem faced by a flexible load, demanding a certain amount of energy over its availability period, subject to rate constraints. The load is also capable of providing Ancillary Services (AS) by decreasing or increasing its consumption in response to signals from the Independent System Operator. Under arbitrarily distributed and correlated Markovian energy and AS prices, we obtain the optimal policy for minimizing expected total cost, which includes cost of energy and benefits from AS provision, assuming no capacity reservation requirement for AS provision. We also prove that the optimal policy has a multi-threshold form and can be computed, stored and operated efficiently. We further study the effectiveness of our proposed optimal policy and its impact on the grid. We show that, while optimal simultaneous consumption and AS provision under real-time stochastic prices is achievable with acceptable computational burden, the impact of adopting such real-time pricing schemes on the network might not be as good as suggested by the majority of the existing literature. In fact, we show that such price responsive loads are likely to induce peak-to-average ratios much more than what is observed in the current distribution networks and adversely affect the grid. Smart grids are expected to bring about fundamental changes in terms of information availability to electricity networks and provide bidirectional communication and energy exchange even to the end points of the distribution network. Although it is generally understood that the closed loop of information/energy exchange can improve the overall energy exchange process in many ways (e.g. reducing cost, increasing reliability), models to quantitatively understand the fundamental benefits of the information availability over smart grids are relatively lacking. A considerable portion of the current electricity demand is inherently flexible i.e., electric power need not be delivered to the load at a very specific trajectory over time. For these loads, an amount of energy is needed by some (potentially recurring) deadline. In other words, over the operation time of the load, the trajectory of the delivered power only needs to satisfy some constraints instead of exactly following a specific trajectory. Such loads include most heating/cooling …