The large-scale integration of renewable energy sources is advancing rapidly in numerous power systems. However, utilizing renewable resources at a bulk scale is hindered by the fact that these resources are neither controllable nor accurately predictable. Our analysis focuses on the cost of balancing power system operations in the presence of renewable resources and on the amount of operating reserves that is necessary for ensuring the reliable operation of the system. We also explore the extent to which demand-side flexibility can mitigate these impacts. We present a contract that couples the operations of renewable energy resources with deferrable loads that can shift a fixed amount of energy demand over a given time window. Various flexible energy consumption tasks can be characterized in this way, including electric vehicle charging or agricultural pumping.

We use a two-stage stochastic unit commitment model for our analysis. The use of this model is justified by the fact that it is capable of quantifying the operating costs of the system and the amount of required capacity in order to face the increased uncertainty of daily operations. We present a dual decomposition algorithm for solving the model and various scenario selection algorithms for representing uncertainty.

We present results for a reduced network of the California power system that consists of 124 generators, 225 buses and 375 lines. We fist validate the stochastic unit commitment policy that we derive from the stochastic optimization model by demonstrating that it outperforms deterministic unit commitment rules commonly used in practice. We demonstrate this superior performance for both a transmission-constrained as well as an unconstrained system for various types of uncertainty including network element failures as well as two levels of wind integration that roughly correspond to the 2012 and 2020 renewable energy integration targets of California. We then use the stochastic unit commitment model to quantify the impacts of coupling renewable energy supply with deferrable demand on operating costs and reserve requirements. We also demonstrate the superiority of coupling contracts to demand-side bidding in the day-ahead market which is due to the fact that demand bids fail to account for the inter-temporal dependency of deferrable demand.