A Bilateral Reserve Market for Variable Generation: Concept and Implementation

Substantial changes in the generation portfolio take place due to the fast growth of renewable energy generation, of which the major types such as wind and solar power have significant forecast uncertainty. Reducing the impacts of uncertainty requires the cooperation of system participants, which are supported by proper market rules and incentives. In this paper, we propose a bilateral reserve market for variable generation (VG) producers and capacity resource providers. In this market, VG producers purchase bilateral reserve services (BRSs) to reduce potential imbalance penalties, and BRS providers earn profits on their available capacity for re-dispatch. We show in this paper that by introducing this product, the VG producers' overall imbalance costs are linked to both their forecast quality and the available system capacity, which follows the cost-causation principle. Case studies demonstrate how the proposed BRS mechanism works and its effectiveness.