  We propose and analyze a day-ahead reserve market model that handles bids
from flexible loads. This pool market model takes into account the fact that a
load modulation in one direction must usually be compensated later by a
modulation of the same magnitude in the opposite direction. Our analysis takes
into account the gaming possibilities of producers and retailers, controlling
load flexibility, in the day-ahead energy and reserve markets, and in imbalance
settlement. This analysis is carried out by an agent-based approach where, for
every round, each actor uses linear programs to maximize its profit according
to forecasts of the prices. The procurement of a reserve is assumed to be
determined, for each period, as a fixed percentage of the total consumption
cleared in the energy market for the same period. The results show that the
provision of reserves by flexible loads has a negligible impact on the energy
market prices but markedly decreases the cost of reserve procurement. However,
as the rate of flexible loads increases, the system operator has to rely more
and more on non-contracted reserves, which may cancel out the benefits made in
the procurement of reserves.
