Procurement and pricing of operating reserves based on the capacity-reliability correlation analysis

The restructuring of power system presents many new challenges for procuring and pricing of operating reserve. The efficient rationing and pricing of such generation source is an important issue to be dealt with in competitive electricity markets, as it is required to maintain system reliability while economically efficient transactions are accommodated in the power system. This paper proposes a procurement and pricing scheme for operating reserves that is based on capacity-reliability correlation analysis and compatible with auction for electricity in the context of competitive electricity markets. Considering various elements including available capacity of generator, outage cost, reliability index and so on, the capacity-reliability correlation analysis, which reflects the equilibrium condition for procurement of operating reserve capacity, is firstly built based on an optimal pricing model. Value of capacity and energy of reserve can then be derived from the model. Using this correlation analysis a novel mechanism for monitoring participant's gaming behavior can also be developed. Finally, the optimal pricing of the reserve capacity in a competitive market is proposed to achieve social welfare-maximization. Simple case studies are used to demonstrate the efficiency and the validity of the proposed scheme.