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Storing Power: Market Structure Matters

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  • Fabra, Natalia
  • Andrés-Cerezo, David

Abstract

We assess how firms' incentives to operate and invest in energy storage depend on the market structure. For this purpose, we characterize equilibrium market outcomes allowing for market power in storage and/or production, as well as for vertical integration between storage and production. Market power reduces overall efficiency through two channels: it induces an inefficient use of the storage facilities, and it distorts investment incentives. The worst outcome for consumers and total welfare occurs under vertical integration. We illustrate our theoretical results by simulating the Spanish wholesale electricity market for different levels of storage capacity. The results are key to understanding how to regulate energy storage, an issue which is critical for the deployment of renewables.

Suggested Citation

  • Fabra, Natalia & Andrés-Cerezo, David, 2020. "Storing Power: Market Structure Matters," CEPR Discussion Papers 15444, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15444
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    Cited by:

    1. Sai Bravo & Carole Haritchabalet, 2023. "Prosumers: Grid Storage vs Small Fuel-Cell," Working Papers hal-04119625, HAL.
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    3. Michele Fioretti & Jorge Tamayo, 2021. "Saving for a Dry Day: Coal, Dams, and the Energy Transition," SciencePo Working papers Main hal-03389152, HAL.
    4. Michele Fioretti & Junnan He & Jorge Tamayo, 2024. "Prices and Concentration: A U-shape? Theory and Evidence from Renewables," Papers 2407.03504, arXiv.org.
    5. Fabra, Natalia, 2023. "Reforming European electricity markets: Lessons from the energy crisis," Energy Economics, Elsevier, vol. 126(C).
    6. David P. Brown & Andrew Eckert & Douglas Silveira, 2023. "Strategic interaction between wholesale and ancillary service markets," Competition and Regulation in Network Industries, , vol. 24(4), pages 174-198, December.
    7. repec:hal:spmain:info:hdl:2441/1qif9fqehq930ovnr511k1el4f is not listed on IDEAS
    8. Fabra, Natalia, 2021. "The energy transition: An industrial economics perspective," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    9. Lamp, Stefan & Samano, Mario, 2022. "Large-scale battery storage, short-term market outcomes, and arbitrage," Energy Economics, Elsevier, vol. 107(C).
    10. Williams, Olayinka & Green, Richard, 2022. "Electricity storage and market power," Energy Policy, Elsevier, vol. 164(C).
    11. Katzen, Matthew & Leslie, Gordon W., 2024. "Siting and operating incentives in electrical networks: A study of mispricing in zonal markets," International Journal of Industrial Organization, Elsevier, vol. 94(C).
    12. repec:hal:wpspec:info:hdl:2441/1qif9fqehq930ovnr511k1el4f is not listed on IDEAS
    13. repec:spo:wpecon:info:hdl:2441/1qif9fqehq930ovnr511k1el4f is not listed on IDEAS
    14. Sai Bravo & Carole Haritchabalet, 2023. "Prosumers: Grid Storage vs Small Fuel-Cell," Working papers of Transitions Energétiques et Environnementales (TREE) hal-04119625, HAL.

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    More about this item

    Keywords

    Storage; Electricity; Market structure; investment;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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