Dynamic Analysis of Operating Reserve Demand Curve in Energy-Only Electricity Markets

Abstract

This paper studies the performance of operating reserve demand curve (ORDC) used in energy-only electricity markets in terms of the installed reserve margin (IRM) and the generator’s profitability, both of which are critical to ensuring system reliability and resource adequacy. For this, a dynamic simulation framework is developed to evaluate the impacts of different scenarios on the indices. The analysis confirms that the ORDC can serve as a mechanism to maintain IRM at certain levels and produce the expected response and evolution of IRM under conditions such as cost shocks. In the simulations, it is found that the generator’s gross margin, usually negatively correlated with IRM, can stabilize IRM when the capacity addition decisions are made based on the average of prior years’ gross margins. Finally, by varying the downward slope of the ORDC using different methods to construct it, IRM can be more efficiently steered toward a targeted value. It is demonstrated that the simulation framework and these observations would be helpful to the design of ORDC in energy-only markets.