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A Risk-Based Equilibrium Analysis of Energy Imbalance Reserve in Day-Ahead Electricity Markets

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Listed:
  • Ryan Ent
  • Golbon Zakeri
  • Jinye Zhao
  • Tongxin Zheng

Abstract

Energy imbalance reserve (EIR) product is introduced into the Independent System Operator (ISO) of New England's day-ahead wholesale electricity market to provide a better fuel procurement incentive for generating resources. Different from existing forward reserve products, EIR is a novel real option product, which is settled against real-time energy price rather than reserve prices. This novel product has not been analyzed in the research literature in terms of its effects. In this paper, we develop a stochastic long-run equilibrium model that incorporates the risk preference of generator and demand agents participating in the energy and reserve market in both day-ahead and real-time time frame. In a risk neutral environment, we find that the presence of the EIR product makes little difference on market outcomes. We also conduct a series of numerical simulations with risk-averse generators and demand, and observed increased advanced fuel procurement when the EIR product is present.

Suggested Citation

  • Ryan Ent & Golbon Zakeri & Jinye Zhao & Tongxin Zheng, 2025. "A Risk-Based Equilibrium Analysis of Energy Imbalance Reserve in Day-Ahead Electricity Markets," Papers 2511.08736, arXiv.org.
    • Handle: RePEc:arx:papers:2511.08736
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    File URL: http://arxiv.org/pdf/2511.08736
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