Practical cost-based approach for the voltage ancillary service

The restructuring and deregulation of the electricity sector most noticeabl y involves the introduction of competition into energy supply. In parallel with this, however, there is an increasing desire amongst transmission syst em operators, generators and consumers for commercial principles to be appl ied to transmission services, including the provision of voltage support an d reactive power control. The identification of the costs of providing such services is an important first step toward developing a transmission servi ces market. Implementing a payment structure based on the remuneration of i ncurred costs can be an attractive option to commercial power sector player s, who wish such costs to be recoverable at an appropriate rate of return, and system operators, who need to be assured of the availability of the nec essary services. This paper addresses both the principles and practical iss ues involved in developing cost-based payments for reactive power, with ref erence to the ongoing restructuring of the Brazilian power sector.