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Financial storage rights in electric power networks

Author

Listed:
  • Daniel Muñoz-Álvarez

    (Cornell University)

  • Eilyan Bitar

    (Cornell University
    Cornell University)

Abstract

The decreasing cost of energy storage technologies coupled with their potential to bring significant benefits to electric power networks have kindled research efforts to design both market and regulatory frameworks to facilitate the efficient construction and operation of such technologies. In this paper, we examine an open access approach to the integration of storage, which enables the complete decoupling of a storage facility’s ownership structure from its operation. In particular, we analyze a nodal spot pricing system built on a model of economic dispatch in which storage is centrally dispatched by the independent system operator (ISO) to maximize social welfare. Concomitant with such an approach is the ISO’s collection of a merchandising surplus reflecting congestion in storage. We introduce a class of tradable electricity derivatives—referred to as financial storage rights (FSRs)—to enable the redistribution of such rents in the form of financial property rights to storage capacity; and establish a generalized simultaneous feasibility test to ensure the ISO’s revenue adequacy when allocating such financial property rights to market participants. Several advantages of such an approach to open access storage are discussed. In particular, we illustrate with a stylized example the role of FSRs in synthesizing fully hedged, fixed-price bilateral contracts for energy, when the seller and buyer exhibit differing intertemporal supply and demand characteristics, respectively.

Suggested Citation

  • Daniel Muñoz-Álvarez & Eilyan Bitar, 2017. "Financial storage rights in electric power networks," Journal of Regulatory Economics, Springer, vol. 52(1), pages 1-23, August.
    • Handle: RePEc:kap:regeco:v:52:y:2017:i:1:d:10.1007_s11149-017-9327-9
    DOI: 10.1007/s11149-017-9327-9
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    References listed on IDEAS

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    Cited by:

    1. Pierre Pinson, 2023. "What may future electricity markets look like?," Papers 2302.02833, arXiv.org, revised Feb 2023.
    2. Bobo, Lucien & Mitridati, Lesia & Taylor, Josh A. & Pinson, Pierre & Kazempour, Jalal, 2021. "Price-region bids in electricity markets," European Journal of Operational Research, Elsevier, vol. 295(3), pages 1056-1073.
    3. Mitridati, Lesia & Kazempour, Jalal & Pinson, Pierre, 2020. "Heat and electricity market coordination: A scalable complementarity approach," European Journal of Operational Research, Elsevier, vol. 283(3), pages 1107-1123.

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    More about this item

    Keywords

    Energy storage; Electricity markets; Financial storage rights; Financial transmission rights;
    All these keywords.

    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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