Comparison between a Fixed Reserve Requirement and an Operating Reserve Demand Curve for Ancillary Services Procurement

Details

Supervisors

Willems, Bert

Faculty

Louvain School of Management

Degree label

Master [60] en sciences de gestion

Abstract

enOperating reserves sit at the intersection of short-run system operation and long-run resource adequacy. How reserves are procured, and in particular whether they are demanded through a hard, administratively fixed requirement or through a value-based Operating Reserve Demand Curve (ORDC), shapes dispatch, reserve volumes, price formation, reliability and system cost. This thesis builds a stylised, Belgium-inspired energy-and-reserve co-optimisation model to compare these two designs, and reads the comparison through the theoretical tension between the Hogan private-good pricing view and the Joskow–Tirole public-good view of reserves. The ORDC used in the model is derived as an inverse demand function for reserves, obtained from the derivative of expected welfare with respect to the reserve margin, which recovers the LOLP · VOLL scarcity adder of Hogan while leaving room for the public-good component emphasised by Joskow–Tirole. The two designs are compared on dispatch, reserve volumes, energy and reserve prices, scarcity hours and operating cost, under sensitivities on net-load uncertainty, renewable penetration and the value of lost load; an extension traces the cost–reliability frontier across a small family of ORDC shapes. The thesis explicitly flags as a boundary condition the technology-specific flexibility premium, which no single-price reserve-auction design can reimburse on its own.