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

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

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 & Tongxin Zheng & Jinye Zhao, 2025. "A Risk-Based Equilibrium Analysis of Energy Imbalance Reserve in Day-Ahead Electricity Markets," Papers 2511.08736, arXiv.org, revised Apr 2026.
    • Handle: RePEc:arx:papers:2511.08736
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    4. Andreas Ehrenmann & Yves Smeers, 2011. "Generation Capacity Expansion in a Risky Environment: A Stochastic Equilibrium Analysis," Operations Research, INFORMS, vol. 59(6), pages 1332-1346, December.
    5. EHRENMANN, Andreas & SMEERS, Yves, 2011. "Generation capacity expansion in a risky environment: a stochastic equilibrium analysis," LIDAM Reprints CORE 2379, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Gauthier DE MAERE D’AERTRYCKE & Andreas EHRENMANN & Yves SMEERS, 2017. "Investment with incomplete markets for risk: the need for long-term contracts," LIDAM Reprints CORE 2849, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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