Packaging Energy and Reserves Bids through Risk Penalties for Enhanced Reliability in Co-optimized Markets

With increasing proportion of wind power, an important concern is that of maintaining the reliability of the electric grid in the face of higher supply-side volatility. In this paper, we examine the role of risk-based penalties in developing alternate designs in which firms combine energy bids associated with uncertain real-time availability with stable reserves bids. Such a study is carried out in a regime where firms have access to a day-ahead market, an uncertain real-time energy market and a reserves market. The resulting game-theoretic problem is a two-period stochastic Nash game with risk-based objectives and the associated equilibrium conditions are given by a complementarity problem. Preliminary numerical results on a 6-firm problem provide insights regarding the impact of reserves prices and risk penalties on wind-based generation, particularly in the face of high variability.