(60c) Quantifying the Untapped Economic Potential of Frequency Regulation Markets for Chemical Manufacturing

The power and chemical sectors have become increasingly interconnected in recent years through a shared interest in decarbonization. The power sector aims to integrate a larger share of renewable resources into the power grid [1,2], which leads to supply/demand imbalances due to the intermittent nature of renewable resources. At the same time, the chemical sector aims to reduce carbon emissions by electrifying manufacturing processes, which correlates profitability to electricity pricing. An opportunity that arises in this synergy is the active, real-time provision of demand flexibility of the chemical sector to the power grid, which can lead to economic benefits for the chemical sector and to a higher adoption of renewable energy in the power grid.

This work explores frequency regulation (FR) market participation as a strategic, high-revenue pathway to monetize the flexibility of fast-responding electrochemical manufacturing systems. Frequency regulation is an ancillary service that is managed by independent system operators (ISOs) and that aims to balance intermittent discrepancies between supply and demand of power at seconds timescales [3]. FR markets compensate participants through two revenue mechanisms: a capacity payment to provide a band of flexibility under which the participant power setpoint may be moved at will, and a mileage payment realized through actual power setpoint adjustments. While diverse studies have explored the participation of chemical manufacturing systems in dynamic markets at the hourly- and minute-level [4,5], the challenge of operating chemical manufacturing systems under rapid, stochastic setpoint changes posed by FR markets has been less explored [6-7].

This work proposes an optimization formulation for simultaneous capacity sizing and operational scheduling for chemical manufacturing systems that aims to (1) quantify the contribution of FR market revenue to the total profit of a grid-connected system, and (2) assess the ability of FR market participation to overcome the high capital costs for emerging electrochemical production systems. The proposed mixed-integer linear program considers linearized production rates, minimum product demand, product storage, estimated annual capital costs, and revenues derived from both product sales and optimal FR market participation decisions. The formulation directly captures the intricate interactions between power systems, chemical production systems, and commodity markets.

The formulation was applied to a case study of an emerging electrochemical system that produces hydrogen and persulfate by decoupling cathode and anode half-reactions using a redox reservoir material [8]. We analyzed the performance of this system using real electricity market data for all seven ISOs in the United States. Key results from this study show that (1) for 2023 market pricing, FR market contributions made up 70-95% of total revenue of the system, which accounts for electricity market participation and chemical product sales; and (2) in the PJM, ERCOT, CAISO, and SPP ISOs, the yearly revenue from market participation and chemical sales was larger than the yearly estimated capital costs, resulting in a positive net profit for the high-capital system of interest. These results highlight that FR market participation can not only enhance the economic viability of chemical manufacturing systems, but may also become the primary source of revenue. Our results aim to change the way in which we think about the design of chemical manufacturing systems (as flexibility providers for the power grid rather than pure chemical producers).

References:

[1] Heptonstall, P. J., & Gross, R. J. K. (2021). A systematic review of the costs and impacts of integrating variable renewables into power grids. Nature Energy, 6(1), 72–83.

[2] Stram, B. N. (2016). Key challenges to expanding renewable energy. Energy Policy, 96, 728–734.

[3] Agostini, C. A., Armijo, F. A., Silva, C., & Nasirov, S. (2021). The role of frequency regulation remuneration schemes in an energy matrix with high penetration of renewable energy. Renewable Energy, 171, 1097–1114.

[4] Mallapragada, D. S., Dvorkin, Y., Modestino, M. A., Esposito, D. V., Smith, W. A., Hodge, B.-M., Harold, M. P., Donnelly, V. M., Nuz, A., Bloomquist, C., Baker, K., Grabow, L. C., Yan, Y., Rajput, N. N., Hartman, R. L., Biddinger, E. J., Aydil, E. S., & Taylor, A. D. (2023). Decarbonization of the chemical industry through electrification: Barriers and opportunities. Joule, 7(1), 23–41.

[5] Ma, J., Rebarchik, M., Bhandari, S., Mavrikakis, M., Huber, G. W., & Zavala, V. M. (2023). Exploiting electricity market dynamics using flexible electrolysis units for retrofitting methanol synthesis. Energy & Environmental Science, 16(5), 2346–2357.

[6] Dowling, A. W., & Zavala, V. M. (2018). Economic opportunities for industrial systems from frequency regulation markets. Computers & Chemical Engineering, 114, 254–264.

[7] Otashu, J. I., & Baldea, M. (2020). Scheduling chemical processes for frequency regulation. Applied Energy, 260, 114125.

[8] Wang, R., Ma, J., Sheng, H., Zavala, V. M., & Jin, S. (2024). Exploiting different electricity markets via highly rate-mismatched modular electrochemical synthesis. Nature Energy, 9(9), 1064–1073.