Arbitrage – Energy Arbitrage is simply purchasing electricity during off-peak periods, storing that electricity and discharging it during peak periods for internal demand or selling into the market. If discharging during peak periods for internal demand, the goal is to reduce electricity costs by avoiding paying higher prices during peak times. If discharging during peak periods for external demand, the goal is to maximize profits. Storing energy purchased during off-peak periods incurs the cost of owning or leasing the storage. This cost needs to offset any savings realized for use for internal demand or sales into the market. Distributed Energy Resources, e.g. solar, wind and natural gas generation, can be installed to generate electricity, which can then be used for internal demand or external demand at peak times. The cost of Distributed Energy Resources also needs to offset the internal savings expected by not purchasing during peak periods or offset the profits by selling electricity externally during peak periods.
Ancillaries – Ancillary services are the services necessary to support the transmission of electric power from generators to consumers, given the obligations of control areas and transmission utilities within those control areas, in order to maintain reliable operations of the interconnected transmission system.
Ancillary services are specialty services and functions provided by independent companies within the electric grid that facilitate and support the continuous flow of electricity, so that the demand for electrical energy is met in real time. The term ancillary services is also used to refer to a variety of operations beyond generation and transmission that are required to maintain grid stability and security. These services generally include active power control or frequency control and reactive power control or voltage control, on various timescales. Traditionally, ancillary services have been provided by large production units such as a generator. With the integration of more intermittent generation and the development of smart grid technologies, the provision of ancillary services is extended to smaller distributed generation and consumption units. By providing these ancillary services, fees are paid for both standby and flowing capacity to help maintain system integrity. Incentives are vital to maintaining providing standby capacity to meet electricity needs during peak periods.