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When energy storage reduces social welfare

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  • Sioshansi, Ramteen

Abstract

This paper examines the potential welfare effects of storage under different market structures. This includes combinations of perfectly competitive and strategic generation and storage sectors, and standalone and generator-owned storage. We demonstrate that if the generation sector is perfectly competitive and does not own storage, then storage cannot be welfare-diminishing. Otherwise, generator-owned storage or standalone storage in a market with strategic generating firms can reduce welfare compared to the no-storage case. This contradicts conventional wisdom that adding firms to an imperfectly competitive market typically reduces welfare losses.

Suggested Citation

  • Sioshansi, Ramteen, 2014. "When energy storage reduces social welfare," Energy Economics, Elsevier, vol. 41(C), pages 106-116.
    • Handle: RePEc:eee:eneeco:v:41:y:2014:i:c:p:106-116
    DOI: 10.1016/j.eneco.2013.09.027
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    References listed on IDEAS

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    1. Graves, Frank & Jenkin, Thomas & Murphy, Dean, 1999. "Opportunities for Electricity Storage in Deregulating Markets," The Electricity Journal, Elsevier, vol. 12(8), pages 46-56, October.
    2. Ramteen Sioshansi, 2011. "Increasing the Value of Wind with Energy Storage," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-30.
    3. 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.
    4. 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.
    5. Walawalkar, Rahul & Apt, Jay & Mancini, Rick, 2007. "Economics of electric energy storage for energy arbitrage and regulation in New York," Energy Policy, Elsevier, vol. 35(4), pages 2558-2568, April.
    6. Sioshansi, Ramteen & Denholm, Paul & Jenkin, Thomas & Weiss, Jurgen, 2009. "Estimating the value of electricity storage in PJM: Arbitrage and some welfare effects," Energy Economics, Elsevier, vol. 31(2), pages 269-277, March.
    7. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-1277, November.
    8. Sioshansi, Ramteen & Denholm, Paul & Jenkin, Thomas, 2011. "A comparative analysis of the value of pure and hybrid electricity storage," Energy Economics, Elsevier, vol. 33(1), pages 56-66, January.
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    More about this item

    Keywords

    Energy storage; Market structure; Arbitrage; Social welfare;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D6 - Microeconomics - - Welfare Economics
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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