Managing Wind Power Uncertainty Through Strategic Reserve Purchasing

With the rapidly increasing penetration of wind power, wind producers are becoming increasingly responsible for the deviation of the wind power output from the forecast. Such uncertainty results in revenue losses to the wind power producers (WPPs) due to penalties in ex-post imbalance settlements. This paper explores the opportunities available for WPPs if they can purchase or schedule some reserves to offset part of their deviation rather than being fully penalized in the real-time market. The revenue for WPPs under such mechanism is modeled. The optimal strategy for managing the uncertainty of wind power by purchasing reserves to maximize the WPP's revenue is analytically derived with rigorous optimality conditions. The amount of energy and reserves that should be bid in the market is explicitly quantified by the probabilistic forecast and the prices of the energy and reserves. A case study using the price data from ERCOT and wind power data from NREL is performed to verify the effectiveness of the derived optimal bidding strategy and the benefits of reserve purchasing. Additionally, the proposed bidding strategy can also reduce the risk of variations on WPP's revenue.