Determinants of reserve margin volatility: A new approach toward managing energy supply and demand

Abstract

This study introduces the concept of reserve margin volatility to analyze factors influencing the fluctuation of reserve margin. This study defines reserve margin volatility as the percentage difference between the expected reserve margin and actual reserve margin. Internal and external factors increase reserve margin volatility, which can lead to regional or national blackouts and cause an economic waste problem. In this regard, this study derives significant variables affecting the reserve margin volatility of South Korea using robust regressions by season through heteroskedasticity and autocorrelation consistent estimators. Meteorological factors including temperature, humidity, heating and cooling degree days, holidays, peak load forecasting error, and the proportion of renewable energy are used as variables to identify the significant determinants. This study found that meteorological variables affect reserve margin volatility in summer and winter to a greater degree than in spring and autumn. Holiday variables decrease reserve margin volatility regardless of season. Mean humidity increases reserve margin volatility only in summer. In addition, peak load forecasting error and the proportion of renewable energy significantly increases reserve margin volatility regardless of season.