  The large shares of wind power generation in electricity markets motivate
higher levels of operating reserves. However, current reserve sizing practices
fail to account for important topological aspects that might hinder their
deployment, thus resulting in high operating costs. Zonal reserve procurement
mitigates such inefficiencies, however, the way the zones are defined is still
open to interpretation. This paper challenges the efficiency of predetermined
zonal setups that neglect the location of stochastic power production in the
system, as well as the availability, cost and accessibility of flexible
generating units. To this end, we propose a novel reserve procurement approach,
formulated as a two-stage stochastic bilevel model, in which the upper level
identifies a number of contiguous reserve zones using dynamic grid partitioning
and sets zonal requirements based on the total expected operating costs. Using
two standard IEEE reliability test cases, we show how the efficient
partitioning of reserve zones can reduce expected system cost and promote the
integration of stochastic renewables.
