A Bilateral Reserve Market for Variable Generation: Concept and Implementation

TL;DR

This paper proposes a bilateral reserve market for renewable energy producers to manage forecast uncertainty, linking imbalance costs to forecast quality and system capacity, supported by case studies demonstrating its effectiveness.

Contribution

It introduces a novel bilateral reserve market mechanism for variable generation, enhancing cooperation and cost management among system participants.

Findings

Bilateral reserve services reduce imbalance penalties for renewable producers.

The mechanism aligns imbalance costs with forecast accuracy and system capacity.

Case studies confirm the effectiveness of the proposed market design.

Abstract

Substantial changes in the generation portfolio take place due to the fast growth of renewable energy generation, of which the major types such as wind and solar power have significant forecast uncertainty. Reducing the impacts of uncertainty requires the cooperation of system participants, which are supported by proper market rules and incentives. In this paper, we propose a bilateral reserve market for variable generation (VG) producers and capacity resource providers. In this market, VG producers purchase bilateral reserve services (BRSs) to reduce potential imbalance penalties, and BRS providers earn profits on their available capacity for re-dispatch. We show in this paper that by introducing this product, the VG producers' overall imbalance costs are linked to both their forecast quality and the available system capacity, which follows the cost-causation principle. Case studies demonstrate how the proposed BRS mechanism works and its effectiveness.