Optimal Contract Design for Purchasing From Frequency Regulation Service Providers With Private Information

In this letter, an incentive compatible contract is designed for purchasing energy and ancillary service (AS) simultaneously from strategic frequency regulation service providers (FRSPs) by considering information asymmetries between independent system operator and FRSPs. Here, AS is confined to frequency reserve (FR) for arresting nadir frequency following possible contingencies of the electrical grid. An FRSP has a multi-dimensional private information vector, which determines its operational cost and limitations. Moreover, there is a gaming opportunity for an FRSP that is arisen between energy and AS payments manifesting by manipulation of its bids. Thus, in this letter, a multi-object contract is designed by using the revelation principle to optimally allocate energy and FR among FRSPs.