Energy and reserve pricing in security and network-constrained electricity markets

• Published in: IEEE transactions on power systems Vol. 20; no. 2; pp. 634 - 643
• Main Authors: Arroyo, J.M., Galiana, F.D.
• Format: Journal Article
• Language: English
• Published: New York IEEE 01.05.2005; The Institute of Electrical and Electronics Engineers, Inc. (IEEE)
• Subjects: Buses (vehicles); Byproducts; Contingency-constrained scheduling; Costs; demand-side reserve; Electricity; electricity markets; Electricity supply industry; Intelligent networks; Lagrangian functions; Load flow; Marketing and sales; Markets; Power generation; Power markets; Pricing; Reserves; Security; security and energy pricing; transmission constraints; up and down-spinning reserve; Vectors
• ISSN: 0885-8950; 1558-0679
• DOI: 10.1109/TPWRS.2005.846221

This paper analyzes some unresolved pricing issues in security-constrained electricity markets subject to transmission flow limits. Although the notion of separate reserve types as proposed by FERC can be precisely and unambiguously defined, when transmission constraints are active, the very existence of separate reserve prices and markets is open to question when the prices are based on marginal costs. Instead, we submit here that the only products whose marginal costs can be separately and uniquely defined and calculated are those of energy and security at each node. Thus, under marginal pricing, at any given network bus all scheduled reserve types should be priced not at separate rates but at a common rate equal to the marginal cost of security at that bus. Furthermore, we argue that nodal or area reserves cannot be prespecified but must be obtained as by-products of the market-clearing process. Simulations back up these conclusions.