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Why market rules matter: Optimizing pumped hydroelectric storage when compensation rules differ

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  • Paine, Nathan
  • Homans, Frances R.
  • Pollak, Melisa
  • Bielicki, Jeffrey M.
  • Wilson, Elizabeth J.

Abstract

Policies, markets, and technologies interact to create the modern electrical system. Integrating large amounts of electricity generated by variable renewable resources, such as from wind and sunlight, into electricity systems may require energy storage technologies to synchronize electricity production with electricity demand. Electricity markets compensate the performance of these energy storage technologies for the services they provide, and these markets are often operated by regional independent system operators (ISOs) that specify the market rules for this compensation. To examine how different ISO rules can affect the operation and profitability an energy storage technology, we develop a dynamic programming model of pumped hydroelectric storage (PHES) facility operation under the market rules from the Midcontinent ISO and ISO-New England. We present how differences in rules between these ISOs produced different operational strategies and profits, and how important they are for PHES profitability.

Suggested Citation

  • Paine, Nathan & Homans, Frances R. & Pollak, Melisa & Bielicki, Jeffrey M. & Wilson, Elizabeth J., 2014. "Why market rules matter: Optimizing pumped hydroelectric storage when compensation rules differ," Energy Economics, Elsevier, vol. 46(C), pages 10-19.
    • Handle: RePEc:eee:eneeco:v:46:y:2014:i:c:p:10-19
    DOI: 10.1016/j.eneco.2014.08.017
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    References listed on IDEAS

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    Citations

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    Cited by:

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    3. Chen, Yang & Odukomaiya, Adewale & Kassaee, Saiid & O’Connor, Patrick & Momen, Ayyoub M. & Liu, Xiaobing & Smith, Brennan T., 2019. "Preliminary analysis of market potential for a hydropneumatic ground-level integrated diverse energy storage system," Applied Energy, Elsevier, vol. 242(C), pages 1237-1247.
    4. Brian C. Murray & William H. Niver, 2020. "A 21st Century Low‐Carbon Transition in U.S. Electric Power: Extent, Contributing Factors, and Implications," Review of Policy Research, Policy Studies Organization, vol. 37(3), pages 412-438, May.
    5. Andrea Molocchi, 2023. "Valuing the social cost of carbon: Do economists really care about climate change?," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2023(2), pages 41-76.
    6. Kyungjin Yoo & Seth Blumsack, 2018. "The Political Complexity of Regional Electricity Policy Formation," Complexity, Hindawi, vol. 2018, pages 1-18, December.
    7. He, YongXiu & Liu, PeiLiang & Zhou, Li & Zhang, Yan & Liu, Yang, 2021. "Competitive model of pumped storage power plants participating in electricity spot Market——in case of China," Renewable Energy, Elsevier, vol. 173(C), pages 164-176.
    8. Bhattacharjee, Subhadeep & Nayak, Pabitra Kumar, 2019. "PV-pumped energy storage option for convalescing performance of hydroelectric station under declining precipitation trend," Renewable Energy, Elsevier, vol. 135(C), pages 288-302.
    9. Tabari, Mokhtar & Shaffer, Blake, 2020. "Paying for performance: The role of policy in energy storage deployment," Energy Economics, Elsevier, vol. 92(C).
    10. Melikoglu, Mehmet, 2017. "Pumped hydroelectric energy storage: Analysing global development and assessing potential applications in Turkey based on Vision 2023 hydroelectricity wind and solar energy targets," Renewable and Sustainable Energy Reviews, Elsevier, vol. 72(C), pages 146-153.
    11. Bhandari, Vivek & Sun, Kaiyang & Homans, Frances, 2018. "The profitability of vehicle to grid for system participants - A case study from the Electricity Reliability Council of Texas," Energy, Elsevier, vol. 153(C), pages 278-286.
    12. Laureen Deman & Quentin Boucher & Sonia Djebali & Guillaume Guerard & C?dric Clastres, 2023. "Bidding strategy of storage hydropower plants in reserve markets," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2023(2), pages 77-101.

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    More about this item

    Keywords

    Energy storage; Electricity markets; Energy market rules; Reliability services; Pumped hydro; Independent system operator;
    All these keywords.

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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