Cost–benefit analysis and mixed-integer linear program (MILP) for optimal reserve capacity determination in power system

In this paper, an approach for optimal determining reserve capacity in the electricity market is presented. This paper describes a method for setting the optimum value of reserve capacity based on the cost of its provision and the benefit derived from its availability. Reduction of customer outage cost is interpreted as the benefit of reserve capacity. In the proposed method, reserve is procured up to the point where the marginal cost of procuring reserve is equal to the marginal value of this reserve capacity. The proposed method can be formulated as a mixed-integer linear program and solved with large-scale commercial solvers. The proposed method is applied to the IEEE reliability test system in order to examine the effectiveness of the proposed method.