Network constrained model for options based reserve procurement by wind generators using binomial tree

Currently the system unbalance caused by the wind power is handled by the real time balancing market, which is operated by the system operators for maintaining reliable operation of power systems. This method cannot always work reliably when the amount of wind penetration increases in the future. A future electricity market, with no subsidies, is assumed in this paper where wind generators have to compete with other generators to sell energy. It is assumed that wind generators are competitively scheduled a day-ahead and would suffer penalties for under production while receiving a poor compensation for over production. To overcome the uncertainty in wind production, an options based network constrained intra-day secondary reserve market is proposed in this research with a mathematical formulation that considers purchasing energy from several reserve providers. Reserves may be purchased by procuring options ahead of transactions by paying premiums and paying strike prices while transacting. The market equilibrium amongst participants will be reached with proposed optimization and the lambda (LaGrange) multiplier associated with power balance equation at each bus determines optimal values of both premiums and strike prices. The amount of required reserve is calculated by using a Cauchy-Lorentz distribution model. The reserves are positive for under production and negative for over production. Transmission network MVA limits are considered to ensure feasibility of options contracts. A 5-bus test system and a real Ontario (Canada) wind farm data with IEEE 118-bus system illustrate the merits of this research.