In this paper we present a centralized model for managing, at the same time, the dayahead energy market and the reserve market in order to price through the market, beside energy, the overall cost of reliability and to assure that the power grid survives the failure of any single components, so to avoid extended blackouts. The model addresses, also, the very important point of long-term market eciency, giving the right economic signals and incentives to guide investments in transmission as well as in production facilities. The model does not use the locational price scheme but determines a unique energy price (which reflects, though, externalities due to transmission and operational constraints) by the means of an auction scheme. In the proposed market model, energy price, reserve price and transmission charges are kept separate as in decentralized systems but they are jointly determined. The model is based on a mathematical optimization program and we propose a simple heuristic coupled with a cutting plane algorithm to solve it very quickly. The cutting plane algorithm requires an extended polyhedral study presented in the second part of the paper.
Università di Catania, Italy. Dipartimento di Matematica ed Informatica. Viale Doria, 6 Catania, Italy