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Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany

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  • Schill, Wolf-Peter
  • Kemfert, Claudia

Abstract

We study the strategic utilization of storage in imperfect electricity markets. We apply a game-theoretic Cournot model to the German power market and analyze different counterfactual and realistic cases of pumped hydro storage. Our main finding is that both storage utilization and storage-related welfare effects depend on storage ownership and the operator's involvement in conventional generation. Strategic operators generally under-utilize owned storage capacity. Strategic storage operation may also lead to welfare losses, in particular if the total storage capacity is controlled by an oligopolistic generator that also owns conventional generation capacity. Yet in the current German situation, pumped hydro storage is not a relevant source of market power.

Suggested Citation

  • Schill, Wolf-Peter & Kemfert, Claudia, 2011. "Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 32(3), pages 59-87.
    • Handle: RePEc:zbw:espost:113661
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    More about this item

    Keywords

    Electric Power Markets; Storage; Market Power; Nash-Cournot;
    All these keywords.

    JEL classification:

    • 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
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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