Demand-side reserve in stochastic market clearing of joint energy/reserve auctions z J. Aghaei 1 * ,y , N. Amjady 2 and H. A. Shayanfar 3 1 Department of Electrical and Electronic Engineering, Shiraz University of Technology, Shiraz 2 Department of Electrical Engineering, Semnan University, Semnan, Iran 3 Center of Excellence for Power System Automation and Operation, Department of Electrical Engineering, Iran University of Science and Technology, Tehran, Iran SUMMARY This paper proposes a stochastic model for security-constrained market clearing that includes supply-side and demand-side reserve offers where energy and reserve are jointly dispatched. In this model, the solution methodology consists of two stages. In the first stage, random disturbances, such as outages of generation units and transmission lines, are modeled as different scenarios using the Lattice Monte Carlo Simulation (LMCS) method. Then, the stochastic market clearing procedure is decomposed into deterministic optimization sub-problems (scenarios) including non-contingent scenario and different post-contingency states. For each deterministic scenario, the resources are scheduled and dispatched in a joint auction through a mixed-integer linear optimization program in which the objective is to maximize the weighted-average social welfare of all market participants. The model is applied to the IEEE 24-bus Reliability Test System (IEEE 24-bus RTS) and simulation studies are carried out to examine the effectiveness of the proposed method. Copyright # 2010 John Wiley & Sons, Ltd. key words: stochastic market clearing; contingency; spinning reserve; non-spinning reserve; Lattice Monte Carlo Simulation 1. INTRODUCTION With the deregulation of the power industry, the main services in power systems have been unbundled into several separate markets such as energy, ancillary services, and transmission markets [1]. The Independent System Operator (ISO) is in charge of maintaining fair, secure, and reliable operation of the power system. Power plant as well as transmission line failures may occur and forecasts of load and intermittent supply are inevitably uncertain. Hence, the necessary real-time adjustment can only be achieved by the provision and use of flexible system reserve capacity [2]. Accordingly, the ISO is responsible for the real-time load balancing, congestion management, and provision of ancillary services. Ancillary service markets have been a very important part of the Standard Market Design (SMD) recommended by the Federal Energy Regulatory Commission (FERC). In the FERC’s proposal, an independent transmission provider would ‘‘establish schedules for transmission service, and sales and purchases of energy, regulation, and both operating reserves (spinning and supplemental), to ensure the most efficient use of the transmission grid’’ [3]. Currently, reserves as ancillary service products have been purchased centrally by the independent system operator (ISO) to ensure the system reliability [4,5]. Recently, there are two forms of market auctions, which are implemented in a deregulated environment for procuring of energy and ancillary services. In some countries, energy and ancillary services are aggregated and in others are not. In an aggregated framework, such as NYISO, PJM, EUROPEAN TRANSACTIONS ON ELECTRICAL POWER Euro. Trans. Electr. Power 2011; 21:565–580 Published online 1 June 2010 in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/etep.462 *Correspondence to: J. Aghaei, Department of Electrical and Electronic Engineering, Shiraz University of Technology, Shiraz y E-mail: aghaei@iust.ac.ir z This article was published online on 01 June, 2010. An error was subsequently identified. This notice is included in the online and print versions to indicate that both have been corrected. 13 December, 2010. Copyright # 2010 John Wiley & Sons, Ltd.