Energy and reserve co-optimisation - Reserve availability, lost opportunity and uplift compensation cost

Ancillary services used for active power balancing are called balancing services or operating reserves and their provision is vital for maintaining power system frequency at the nominal value. In a deregulated environment, where generation is unbundled from transmission and distribution operations, independently owned generating companies may elect to provide operating reserves. However, it is not easy to calculate the exact cost of reserve provision and, therefore, bid for it accurately. Although the cost efficiency of reserve provision can be improved by co-optimising energy and reserve markets, generating companies can still encounter monetary losses caused by the provision of reserve. Currently, these losses are compensated based on ex-post calculations. Hence, current energy and reserve prices do not adequately factor in the ex-post compensation caused by reserve provision. This study proposes an energy and reserve co-optimisation with an explicit consideration of two compensation mechanisms, i.e. lost opportunity and uplift payments. The problem is structured as a bilevel model. The upper level is a mixed-integer unit commitment problem and the lower level is a continuous economic dispatch problem. The case study shows that the proposed model increases market efficiency.