How to remunerate ramping services?

This paper studies the optimal procurement of ramping reserves and the comparison of the timing of compensation between real time versus day ahead reserve payments for ramping. We develop the extension of a model that considers a two settlement market in which ramping reserves are determined using a stochastic program. We compare different alternatives for compensation (e.g. paying opportunity cost to limit the speculation in the market, or difference between nodal prices and offers made) As per economic theory, mechanisms like the first one provide proper incentives. In the meantime, the second compensation above suggested may lead to too much speculation and fewer reserves that may render the system n-1 not secure. We recommend to use pre-payment of reserves, mainly due to the issues that arise in determining a fair compensation for real time settlement due to the non-linearities of the system.