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Microeconomic models of electricity storage: Price Forecasting, arbitrage limits, curtailment insurance, and transmission line utilization

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  • Antweiler, Werner

Abstract

This paper develops microeconomic models of electricity storage. The full economic potential of price arbitrage with nodal storage hinges not only on battery characteristics (energy-to-power ratio) but crucially also on the quality of price forecasting. Economic theory can also quantify the intrinsic profitability limitations as increased storage deployment smoothes price variations. The profitability of supply-side storage for intermittent power producers depends on the exposure to curtailment risk and thus the empirical distribution of negative price episodes. Demand-side storage can be economical when improved utilization of existing power lines avoids expanding them, and this trade-off potential is captured in a theoretical model. Economic magnitudes are explored with zonal prices from Ontario, which has some of the most volatile electricity prices in North America. Wider use of locational marginal prices in wholesale electricity markets will incentivize efficient deployment of electricity storage and also induce intermittent power producers to internalize curtailment risk appropriately.

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  • Antweiler, Werner, 2021. "Microeconomic models of electricity storage: Price Forecasting, arbitrage limits, curtailment insurance, and transmission line utilization," Energy Economics, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:eneeco:v:101:y:2021:i:c:s0140988321002899
    DOI: 10.1016/j.eneco.2021.105390
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    3. Antweiler, Werner & Muesgens, Felix, 2024. "The new merit order: The viability of energy-only electricity markets with only intermittent renewable energy sources and grid-scale storage," Ruhr Economic Papers 1064, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. Brown, David B. & Muehlenbachs, Lucija, 2023. "The Value of Electricity Reliability: Evidence from Battery Adoption," RFF Working Paper Series 23-10, Resources for the Future.
    5. Gorman, Will & Montañés, Cristina Crespo & Mills, Andrew & Kim, James Hyungkwan & Millstein, Dev & Wiser, Ryan, 2022. "Are coupled renewable-battery power plants more valuable than independently sited installations?," Energy Economics, Elsevier, vol. 107(C).
    6. Michas, Serafeim & Flamos, Alexandros, 2023. "Are there preferable capacity combinations of renewables and storage? Exploratory quantifications along various technology deployment pathways," Energy Policy, Elsevier, vol. 174(C).
    7. Brown, David P. & Muehlenbachs, Lucija, 2024. "The value of electricity reliability: Evidence from battery adoption," Journal of Public Economics, Elsevier, vol. 239(C).
    8. Mercier, Thomas & Olivier, Mathieu & De Jaeger, Emmanuel, 2023. "The value of electricity storage arbitrage on day-ahead markets across Europe," Energy Economics, Elsevier, vol. 123(C).
    9. Lamp, Stefan & Samano, Mario, 2022. "Large-scale battery storage, short-term market outcomes, and arbitrage," Energy Economics, Elsevier, vol. 107(C).
    10. Sai Bravo & Carole Haritchabalet, 2023. "Prosumers: Grid Storage vs Small Fuel-Cell," Working papers of Transitions Energétiques et Environnementales (TREE) hal-04119625, HAL.

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    More about this item

    Keywords

    Electricity economics; Electricity storage; Optimal control;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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