IDEAS home Printed from https://ideas.repec.org/a/eee/appene/v292y2021ics0306261921003329.html
   My bibliography  Save this article

Deleterious effects of strategic, profit-seeking energy storage operation on electric power system costs

Author

Listed:
  • Shan, Rui
  • Abdulla, Ahmed
  • Li, Mingquan

Abstract

Energy storage will play a key role in the unfolding energy transition, but current market design and the modeling efforts that inform discussions surrounding its role broadly assume that these systems will not be deployed in ways deleterious to the objectives of the wider power grid. This is myopic: there are plausible and strategic modes of storage operation that clash with wider grid objectives while maximizing profits for storage system owners. Here we compare three modes: one that is commonly modeled and is broadly beneficial to the power system—peak shaving—with two plausible but deleterious ones—load leveraging and ramp augmenting—and show how the latter two increase system costs and help generators earn substantial profits even when they bid at marginal cost. Our work adds to a growing literature about the unintended consequences of energy storage on the power system and elaborates the essential role of policy makers and regulators in mitigating these effects.

Suggested Citation

  • Shan, Rui & Abdulla, Ahmed & Li, Mingquan, 2021. "Deleterious effects of strategic, profit-seeking energy storage operation on electric power system costs," Applied Energy, Elsevier, vol. 292(C).
    • Handle: RePEc:eee:appene:v:292:y:2021:i:c:s0306261921003329
    DOI: 10.1016/j.apenergy.2021.116833
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0306261921003329
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.apenergy.2021.116833?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Noah Kittner & Felix Lill & Daniel M. Kammen, 2017. "Energy storage deployment and innovation for the clean energy transition," Nature Energy, Nature, vol. 2(9), pages 1-6, September.
    2. James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2008. "Vertical Arrangements, Market Structure, and Competition: An Analysis of Restructured US Electricity Markets," American Economic Review, American Economic Association, vol. 98(1), pages 237-266, March.
    3. Zamani-Dehkordi, Payam & Shafiee, Soroush & Rakai, Logan & Knight, Andrew M. & Zareipour, Hamidreza, 2017. "Price impact assessment for large-scale merchant energy storage facilities," Energy, Elsevier, vol. 125(C), pages 27-43.
    4. Bataille, Marc & Bodnar, Olivia & Steinmetz, Alexander & Thorwarth, Susanne, 2019. "Screening instruments for monitoring market power: The return on withholding capacity index (RWC)," DICE Discussion Papers 311, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. McConnell, Dylan & Forcey, Tim & Sandiford, Mike, 2015. "Estimating the value of electricity storage in an energy-only wholesale market," Applied Energy, Elsevier, vol. 159(C), pages 422-432.
    6. Maryam Arbabzadeh & Ramteen Sioshansi & Jeremiah X. Johnson & Gregory A. Keoleian, 2019. "The role of energy storage in deep decarbonization of electricity production," Nature Communications, Nature, vol. 10(1), pages 1-11, December.
    7. Cornelius, Adam & Bandyopadhyay, Rubenka & Patiño-Echeverri, Dalia, 2018. "Assessing environmental, economic, and reliability impacts of flexible ramp products in MISO's electricity market," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P2), pages 2291-2298.
    8. Mansur, Erin T, 2007. "Upstream Competition and Vertical Integration in Electricity Markets," Journal of Law and Economics, University of Chicago Press, vol. 50(1), pages 125-156, February.
    9. Shafiee, Soroush & Zamani-Dehkordi, Payam & Zareipour, Hamidreza & Knight, Andrew M., 2016. "Economic assessment of a price-maker energy storage facility in the Alberta electricity market," Energy, Elsevier, vol. 111(C), pages 537-547.
    10. A. Stephan & B. Battke & M. D. Beuse & J. H. Clausdeinken & T. S. Schmidt, 2016. "Limiting the public cost of stationary battery deployment by combining applications," Nature Energy, Nature, vol. 1(7), pages 1-9, July.
    11. Bataille, Marc & Bodnar, Olivia & Steinmetz, Alexander & Thorwarth, Susanne, 2019. "Screening instruments for monitoring market power — The Return on Withholding Capacity Index (RWC)," Energy Economics, Elsevier, vol. 81(C), pages 227-237.
    12. Wolf-Peter Schill & Claudia Kemfert, 2011. "Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 59-88.
    13. James Bushnell, 2003. "A Mixed Complementarity Model of Hydrothermal Electricity Competition in the Western United States," Operations Research, INFORMS, vol. 51(1), pages 80-93, February.
    14. Sioshansi, Ramteen, 2014. "When energy storage reduces social welfare," Energy Economics, Elsevier, vol. 41(C), pages 106-116.
    15. Debia, Sébastien & Pineau, Pierre-Olivier & Siddiqui, Afzal S., 2019. "Strategic use of storage: The impact of carbon policy, resource availability, and technology efficiency on a renewable-thermal power system," Energy Economics, Elsevier, vol. 80(C), pages 100-122.
    16. Ramteen Sioshansi, 2010. "Welfare Impacts of Electricity Storage and the Implications of Ownership Structure," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 173-198.
    17. Sidhu, Arjan S. & Pollitt, Michael G. & Anaya, Karim L., 2018. "A social cost benefit analysis of grid-scale electrical energy storage projects: A case study," Applied Energy, Elsevier, vol. 212(C), pages 881-894.
    18. Bradbury, Kyle & Pratson, Lincoln & Patiño-Echeverri, Dalia, 2014. "Economic viability of energy storage systems based on price arbitrage potential in real-time U.S. electricity markets," Applied Energy, Elsevier, vol. 114(C), pages 512-519.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wu, Yunyun & Fang, Jiakun & Ai, Xiaomeng & Xue, Xizhen & Cui, Shichang & Chen, Xia & Wen, Jinyu, 2023. "Robust co-planning of AC/DC transmission network and energy storage considering uncertainty of renewable energy," Applied Energy, Elsevier, vol. 339(C).
    2. Sun, Shitong & Kazemi-Razi, S. Mahdi & Kaigutha, Lisa G. & Marzband, Mousa & Nafisi, Hamed & Al-Sumaiti, Ameena Saad, 2022. "Day-ahead offering strategy in the market for concentrating solar power considering thermoelectric decoupling by a compressed air energy storage," Applied Energy, Elsevier, vol. 305(C).
    3. Shan, Rui & Kittner, Noah, 2024. "Allocation of policy resources for energy storage development considering the Inflation Reduction Act," Energy Policy, Elsevier, vol. 184(C).
    4. Li, Mingquan & Shan, Rui & Virguez, Edgar & Patiño-Echeverri, Dalia & Gao, Shuo & Ma, Haichao, 2022. "Energy storage reduces costs and emissions even without large penetration of renewable energy: The case of China Southern Power Grid," Energy Policy, Elsevier, vol. 161(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Debia, Sébastien & Pineau, Pierre-Olivier & Siddiqui, Afzal S., 2021. "Strategic storage use in a hydro-thermal power system with carbon constraints," Energy Economics, Elsevier, vol. 98(C).
    2. Rangarajan, Arvind & Foley, Sean & Trück, Stefan, 2023. "Assessing the impact of battery storage on Australian electricity markets," Energy Economics, Elsevier, vol. 120(C).
    3. Farzad Hassanzadeh Moghimi & Yihsu Chen & Afzal S. Siddiqui, 2023. "Flexible supply meets flexible demand: prosumer impact on strategic hydro operations," Computational Management Science, Springer, vol. 20(1), pages 1-35, December.
    4. Megy, Camille & Massol, Olivier, 2023. "Is Power-to-Gas always beneficial? The implications of ownership structure," Energy Economics, Elsevier, vol. 128(C).
    5. repec:diw:diwwpp:dp1766 is not listed on IDEAS
    6. Neetzow, Paul & Mendelevitch, Roman & Siddiqui, Sauleh, 2019. "Modeling coordination between renewables and grid: Policies to mitigate distribution grid constraints using residential PV-battery systems," Energy Policy, Elsevier, vol. 132(C), pages 1017-1033.
    7. Csereklyei, Zsuzsanna & Kallies, Anne & Diaz Valdivia, Andres, 2021. "The status of and opportunities for utility-scale battery storage in Australia: A regulatory and market perspective," Utilities Policy, Elsevier, vol. 73(C).
    8. Williams, Olayinka & Green, Richard, 2022. "Electricity storage and market power," Energy Policy, Elsevier, vol. 164(C).
    9. Arnold, Lutz G. & Arnold, Volker, 2024. "Energy imports and manufacturing exports with successive oligopolies and storage," Energy Economics, Elsevier, vol. 133(C).
    10. Schill, Wolf-Peter, 2011. "Electric Vehicles in Imperfect Electricity Markets: The case of Germany," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 39(10), pages 6178-6189.
    11. Intini, Mario & Waterson, Michael, 2020. "Do British wind generators behave strategically in response to the Western Link interconnector?," CAGE Online Working Paper Series 455, Competitive Advantage in the Global Economy (CAGE).
    12. Wolf-Peter Schill & Claudia Kemfert, 2011. "Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 59-88.
    13. David Andrés‐Cerezo & Natalia Fabra, 2023. "Storing power: market structure matters," RAND Journal of Economics, RAND Corporation, vol. 54(1), pages 3-53, March.
    14. Jerry Anunrojwong & Santiago R. Balseiro & Omar Besbes & Bolun Xu, 2024. "Battery Operations in Electricity Markets: Strategic Behavior and Distortions," Papers 2406.18685, arXiv.org.
    15. Tómasson, Egill & Hesamzadeh, Mohammad Reza & Wolak, Frank A., 2020. "Optimal offer-bid strategy of an energy storage portfolio: A linear quasi-relaxation approach," Applied Energy, Elsevier, vol. 260(C).
    16. Ding, Jie & Xu, Yujie & Chen, Haisheng & Sun, Wenwen & Hu, Shan & Sun, Shuang, 2019. "Value and economic estimation model for grid-scale energy storage in monopoly power markets," Applied Energy, Elsevier, vol. 240(C), pages 986-1002.
    17. Karim L. Anaya & Michael G. Pollitt, 2018. "Storage Business Models: Lessons for Electricity from Natural Gas, Cloud Data and Frozen Food," Working Papers EPRG 1804, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    18. Ikechi Emmanuel, Michael & Denholm, Paul, 2022. "A market feedback framework for improved estimates of the arbitrage value of energy storage using price-taker models," Applied Energy, Elsevier, vol. 310(C).
    19. Goteti, Naga Srujana & Hittinger, Eric & Sergi, Brian & Lima Azevedo, Inês, 2021. "How does new energy storage affect the operation and revenue of existing generation?," Applied Energy, Elsevier, vol. 285(C).
    20. He, Guannan & Ciez, Rebecca & Moutis, Panayiotis & Kar, Soummya & Whitacre, Jay F., 2020. "The economic end of life of electrochemical energy storage," Applied Energy, Elsevier, vol. 273(C).
    21. Debia, Sébastien & Pineau, Pierre-Olivier & Siddiqui, Afzal S., 2019. "Strategic use of storage: The impact of carbon policy, resource availability, and technology efficiency on a renewable-thermal power system," Energy Economics, Elsevier, vol. 80(C), pages 100-122.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:appene:v:292:y:2021:i:c:s0306261921003329. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.