Co-optimization of Energy and Reserve in Electricity Markets with Demand-side Participation in Reserve Services

This paper proposes a model of electricity market with co-optimization of energy and reserve provided by both the supply and the demand sides. The model takes into consideration the offers from the demand-side for the provision of reserve services. Each reserve provider submits offer for reserve at each hour. Those selected to provide reserve are compensated with at least their own lost opportunity cost. Generators and consumers who are called upon to actually respond to a contingency, are paid an exercise fee in addition to their normal reserve payment. The effects of the incremental cost of exercising reserve from the demand-side on the electricity market are investigated. The difficulties in formulating the reserve constraints for generators with piece-wise linear cost curves due to the appearance of lost opportunity costs are also considered