Economical Analysis of Distributed Joint Energy and Reserve Markets

Abstract

The deep and ever increasing penetration of renewable generation requires a large amount of reserve to compensate the random fluctuation and uncertainty, which makes the reserve becoming a commodity as equally important as the energy in the future smart grid. As reserve and energy are tightly coupled, we are interested in revealing their inherent characteristics in electricity market from an economics point of view, which, however, is forbidden by the current electricity marker structures. To this end, this paper proposes a novel, yet simple, distributed joint electricity market, which consists of conventional generator, renewable generator and user, and intends to balance energy and reserve simultaneously. The simple market structure enables rigorous analysis of individual behavior regarding the prices and quantities of energy and reserve. Then, we prove the existence and uniqueness of the market equilibrium, according to which, we reveal the prices and quantities at equilibrium as explicit functions of system parameters, which brings great insights to the joint energy and reserve markets.