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The role of storage in a competitive electricity market and the effects of climate change

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  • Evans, Lewis
  • Guthrie, Graeme
  • Lu, Andrea

Abstract

This paper uses a new model of a competitive electricity market to investigate the role of storage in markets dominated by hydro generation. Competition among generators leads to an endogenous shadow price of stored water, which facilitates the efficient intra-day and inter-season substitution of fuel. Overall welfare depends on storage capacity, the cost structure of non-hydro generators, and the characteristics of water inflows. If climate change reduces the long-run average level of inflows or leads to the introduction of a carbon tax then overall welfare will fall and the profitability of generators will rise. The welfare benefits from additional storage capacity will increase if climate change makes long-term inflows less predictable or leads to the introduction of a carbon tax. They will decrease if average inflows fall or the predictable seasonal cycle in inflows becomes less pronounced.

Suggested Citation

  • Evans, Lewis & Guthrie, Graeme & Lu, Andrea, 2013. "The role of storage in a competitive electricity market and the effects of climate change," Energy Economics, Elsevier, vol. 36(C), pages 405-418.
    • Handle: RePEc:eee:eneeco:v:36:y:2013:i:c:p:405-418
    DOI: 10.1016/j.eneco.2012.09.016
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    Cited by:

    1. Durmaz, Tunç, 2016. "Precautionary Storage in Electricity Markets," Discussion Papers 2016/5, Norwegian School of Economics, Department of Business and Management Science.
    2. Phillip Wild, William Paul Bell, and John Foster, 2015. "Impact of Carbon Prices on Wholesale Electricity Prices and Carbon Pass-Through Rates in the Australian National Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    3. Robles, Jack, 2016. "Infinite horizon hydroelectricity games," Working Paper Series 5075, Victoria University of Wellington, School of Economics and Finance.
    4. Genc, Talat S. & Thille, Henry & ElMawazini, Khaled, 2020. "Dynamic competition in electricity markets under uncertainty," Energy Economics, Elsevier, vol. 90(C).
    5. Graeme Guthrie, 2023. "Land Hoarding and Urban Development," The Journal of Real Estate Finance and Economics, Springer, vol. 67(4), pages 753-793, November.
    6. Zakeri, Behnam & Syri, Sanna, 2015. "Electrical energy storage systems: A comparative life cycle cost analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 569-596.
    7. Crampes, Claude & Trochet, Jean-Michel, 2019. "Economics of stationary electricity storage with various charge and discharge durations," TSE Working Papers 19-985, Toulouse School of Economics (TSE).
    8. Haoran Zhao & Sen Guo & Huiru Zhao, 2018. "Comprehensive Performance Assessment on Various Battery Energy Storage Systems," Energies, MDPI, vol. 11(10), pages 1-26, October.
    9. Robles, Jack, 2016. "Infinite horizon hydroelectricity games," Working Paper Series 19421, Victoria University of Wellington, School of Economics and Finance.

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    More about this item

    Keywords

    Electricity markets; Stochastic river flows; Storage options; Climate change;
    All these keywords.

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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