Why reserve margins aren’t just about keeping the lights on.
Kevin Carden is the director and Nick Wintermantel is a principal of Astrape Consulting. Johannes Pfeifenberger is a principal and practice area leader of The Brattle Group. The authors acknowledge the contributions of Paul Centolella, Reed Edwards, Philip Hanser, Delphine Hou, Kamen Madjarov, John Seelke, and Steven Stoft. The opinions expressed in this article, as well as any errors or omissions, are solely those of the authors.
Setting target reserve margins within the context of resource adequacy planning has historically been based strictly on the “1 day of firm load shed in 10 years” reliability standard. In other words, under the 1-in-10 standard, reserve margins are determined solely based on the probability of physical load loss events. This approach doesn’t explicitly determine whether the particular target reserve margin is reasonably cost-effective or otherwise justified economically. In fact, the economic benefit of avoiding one firm load-shed event in 10 years is small relative to the cost of carrying incremental capacity. However, the economic benefits of reserve capacity go beyond avoiding load-shed events to include reducing high-cost emergency purchases, the dispatch of energy-limited (e.g., intermittent, storage, etc.) and high-cost resources, and the interruption of expensive demand-response resources.