Preliminary evaluation of an energy and reserve co-optimization market design for the ISO New England

This paper documents the two parallel activities, the development of a market simulation model of forward and real-time reserve trading, and the results and analysis of numerous experiments on those markets. The experiments serve to incrementally construct our understanding of these markets and to validate the performance of the simulation software. The overall character of the results is typical of economic systems with many interacting commodities utilizing scarce transport. In this case, the forward and real-time reserve products are traded along with energy, transmission, and interfaces. Interfaces act to hold transmission system capacity in reserve, by restricting the total flow over multiple lines to be less than their combined transfer capability. The complications of these interactions can be understood from the constructive process followed throughout the report. We consider the single simultaneous settlement of energy and reserve over uncongested and congested networks and also two settlements of reserve. Competitive and strategic bidding strategies play a critical role in benchmarking and in understanding the potential for the exercise of market power. Experiments with a simplified version of the ISO-NE power system match the past market performance well and help identify potential issues in data collection and market performance.