Abstract

In almost all countries, electricity reform has been a part of wider policies towards a liberal market economy. The former vertically integrated electricity utilities were restructured and unbundled by a reform process that introduced competition into generation, wholesale, and retail segments of the industry. The transmission and distribution businesses that were either regional or national monopolies have been subjected to regulation by an independent regulator. Other common elements of the reforms include the introduction of wholesale and spot power markets, the establishment of impartial market and system operators, the removal of restrictions on third party access to grids and, in some cases, privatization.When talking about electricity markets one usually refers to active power markets paying less attention to ancillary services, namely to reactive power/voltage control. This usually leads to a chronological sequence of activities that may lead to inefficiencies because active and reactive powers are coupled given the capability diagram of synchronous generators, the AC power flow equations and the branch thermal limits.The operational impacts of intermittent generation related to renewable resources show the multiple challenges that most power systems have to face. This is already noticeable in countries that currently have a large penetration of wind and solar production. While microgrids can be a source of renewable and reliable energy for utility distribution systems, significant challenges exist in stable operation and meeting the economic goals of the microgrid owners.Thus, microgrids represent a new paradigm for the operation of distribution systems and there are several advantages as well as challenges regarding their development. One of the advantages is related to the participation of microgrid agents in electricity markets and in the provision of ancillary services.In this chapter we describe an optimization model to allocate ancillary services among microgrid agents. The ancillary services are reactive power/voltage control, active loss balancing, and demand interruption. This model assumes that microgrid agents participate in the day-ahead market by sending their bids to the microgrid central controller that acts as an interface with the market operator. Once the market operator returns the economic dispatch of the microgrid agents, the MGCC checks its technical feasibility and activates an adjustment market to change the initial schedule and to allocate ancillary services. The model admits that voltage and branch flow limits are modeled in a soft way using fuzzy set concepts.