Overprocurement of balancing capacity may increase the welfare in the cross-zonal energy-reserve coallocation problem

TL;DR

This paper explores how overprocurement of reserve capacity in cross-zonal energy markets can unexpectedly increase welfare by enabling better congestion management and additional network flows.

Contribution

It demonstrates that overprocurement of reserves, typically seen as inefficient, can provide benefits by facilitating congestion management and increasing network flows.

Findings

Overprocurement can improve network congestion management.

Reserve overprocurement may lead to increased welfare.

Unused reserves can be utilized for additional flows.

Abstract

When the traded energy and reserve products between zones are co-allocated to optimize the infrastructure usage, both deterministic and stochastic flows have to be accounted for on interconnector lines. We focus on allocation models, which guarantee deliverability in the context of the portfolio bidding European day-ahead market framework, assuming a flow-based description of network constraints. In such models, as each unit of allocated reserve supply implies additional cost, it is straightforward to assume that the amount of allocated reserve is equal to the accepted reserve demand quantity. However, as it is illustrated by the proposed work, overprocurement of reserves may imply counterintuitive benefits. Reserve supplies not used for balancing may be used for congestion management, thus allowing valuable additional flows in the network.