Value of hydro power plants in integrated markets for energy and ancillary services

For a stable supply of electricity power plants are required to provide ancillary services in addition to energy production. This paper suggests a solution for optimal bidding strategy for hydroelectric units operating in markets where both energy and ancillary services are priced simultaneously. The model is illustrated on a numerical example of a hydro unit operating in such markets of New York Independent System Operator. A hydro unit with an average water availability offering its capacity in ancillary services markets in addition to energy market increases the value of existing generating capacity by 25% and nearly doubles the value of capacity upgrades.