Simulation-based estimation of the economic benefits implied by coordinated balancing capacity procurement and deployment in a day-ahead market model

Abstract

In this paper we analyze how increasing levels of cooperation in reserve procurement and activation affect the implied economic benefits and the respective network loads assuming various paradigms of coordination. To approach the question we construct a simulation model based on the portfolio-bidding day-ahead market clearing context, which takes into account the stochastic nature of reserve activation. Results show that the application of reserve demand netting is desirable in all considered aspects and benefits tend to saturate with increasing number of cooperating zones. Assuming the simultaneous application of the common merit order and reserve demand netting, in which case the benefits are the most significant, simulations show that reserve activation costs are reduced by 71% in the case of 4 zones, compared to the reference case with no coordination, while increasing the number of cooperating zones from 4 to 6, form 6 to 8 and from 8 to 10, implies only a further incremental improvement of 8, 3 and 2%. Regarding policy aspects the results point out that it may be desirable to facilitate the formation of multiple regional cooperation frameworks, which should be easier to establish compared to full-scale integration of reserve procurement and activation platforms.