Reliability differentiated pricing of spinning reserve

This paper derives the spinning reserve pricing policy implied by the reliability differentiated pricing model and illustrates the importance of such a pricing policy. The purchase of additional spinning reserve capacity at the prices derived leads to benefits for the customers, through reduced real and reactive power prices and improved reliability of the power system, and for the power system as a whole, through reduced societal costs and less investment in system reinforcements. The magnitudes and behavior of the optimal prices for real and reactive spinning reserve are illustrated in two case studies. One case study determines reliability differentiated prices of real and reactive power for a sample four-area power system with and without spinning reserve purchase and the optimal purchase prices for both real and reactive power spinning reserve capacities. The results of this case study show that when reliability differentiated pricing is extended to both real and reactive power reserve it leads to benefits for customers and the power system as a whole. A second case study examines the locational dependence of optimal prices for real and reactive reserves on the operating status of equipment in the 24-bus IEEE Reliability Test System. It is concluded that even small amounts of reliable reserve capacity purchase from neighboring electric utilities can improve the reliability of the power system and lower expected real and reactive power prices leading to gains in social welfare