A market-based approach for enabling inter-area reserve exchange

TL;DR

This paper proposes a market-based framework for optimal inter-area reserve exchange in Europe, ensuring efficient capacity allocation and stable payments with desirable economic properties.

Contribution

It introduces a novel min-max least core payment scheme that guarantees individual rationality, budget balance, and approximate incentive compatibility in reserve markets.

Findings

Payments achieve individual rationality and budget balance

Framework extends private discrete item allocation to networked public choices

Results support stable and efficient inter-area reserve exchanges

Abstract

Considering the sequential clearing of energy and reserves in Europe, enabling inter-area reserve exchange requires optimally allocating inter-area transmission capacities between these two markets. To achieve this, we provide a market-based allocation framework and derive payments with desirable properties. The proposed min-max least core selecting payments achieve individual rationality, budget balance, and approximate incentive compatibility and coalitional stability. The results extend the works on private discrete items to a network of continuous public choices.