Market Integration of HVDC Lines: Cost Savings from Loss Allocation and Redispatching

In the Nordic region, many interconnectors are formed by HVDC links, as Scandinavia, Continental Europe and the Baltic region are non-synchronous AC systems. This paper presents two cost benefit analyses on the utilization of HVDC interconnectors in the Nordic countries: in the first we investigate the utilization of HVDC interconnectors for reserve procurement and, in the second, we assess the implementation of implicit grid losses on HVDC interconnectors in the day-ahead market. The first analysis is motivated by real events in 2018 where the inertia of the Nordic system dropped below a critical level and the most critical generating unit, a nuclear power plant in Sweden, was redispatched to guarantee the security of the system. In order to guarantee system security while reducing the costs of preventive actions, in summer 2020 new frequency products were introduced in the Nordic system: the Fast Frequency Reserves (FFR). HVDC lines, however, can perform similar tasks at lower costs. In our analysis, we are, thus, investigating the cost savings of using HVDC lines for frequency support using their Emergency Power Control (EPC) functionality, instead of redispatching or FFR. The second analysis is based on the proposition of Nordic Transmission System Operators (TSOs) to introduce linear HVDC loss factors in the market clearing. With our analysis, we show that linear loss factors can unfairly penalize one HVDC line over the other, and this can reduce social benefits and jeopardize revenues of merchant HVDC lines. In this regard, we propose piecewise-linear loss factors: a simple-to-implement but highly-effective solution. Moreover, we demonstrate how the introduction of HVDC loss factors is a partial solution, since it disproportionally increases the AC losses. Our results show that the additional inclusion of AC loss factors can eliminate this problem.