Energy and spinning reserve payment cost co-optimization

In the current U.S. electricity market, supply bids are selected to minimize the bid costs, but are then paid at the marginal price, leading to significantly higher payments than the minimized bid costs. This gives rise to the “payment cost minimization” mechanism, which minimizes payments directly. We previously presented the “objective switching” method to solve single-product payment cost minimization problems. In view that spinning reserve is typically co-optimized with energy, this paper further develops the “objective switching” method to solve the co-optimization of energy and spinning reserve. The prices are defined in a linear way to be the highest bid price among the “participating units, ” and congestion status variables are introduced to describe congestion-dependent LMP for energy product. Similar to single-product payment cost minimization, the co-optimization problem has an irregular convex hull, which is difficult to obtain by the branch & cut. To overcome the above difficulty, the objective switching method is further developed. Salient features of the improved method include a new way to add performance cuts to guarantee the convergence, and heuristics developed in the infeasibility minimization stage. Numerical testing results of small examples and the 24-bus IEEE Reliability Test System demonstrate the effectiveness and efficiency of the method.