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Welfare Impacts of Electricity Storage and the Implications of Ownership Structure

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  • Ramteen Sioshansi

Abstract

Increases in electricity price volatility have raised interest in electricity storage and its potential arbitrage value. Large utility-scale electricity storage can decrease the value of energy arbitrage by smoothing differences in prices on- and off-peak, however this price-smoothing effect can result in significant external welfare gains by reducing consumer energy costs and generator profits. As such, the incentives of merchant storage operators, consumers, and generators may not be properly aligned to ensure socially-optimal storage use. We examine storage use incentives for these different agent types and show that under most reasonable market structures a combination of merchant and consumer ownership of storage maximizes potential welfare gains from storage use.

Suggested Citation

  • 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.
  • Handle: RePEc:aen:journl:2010v31-02-a07
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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
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    1. repec:kap:regeco:v:52:y:2017:i:1:d:10.1007_s11149-017-9327-9 is not listed on IDEAS
    2. Schill, Wolf-Peter, 2011. "Electric Vehicles in Imperfect Electricity Markets," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 6178-6189.
    3. Nyamdash, Batsaikhan & Denny, Eleanor & O'Malley, Mark, 2010. "The viability of balancing wind generation with large scale energy storage," Energy Policy, Elsevier, vol. 38(11), pages 7200-7208, November.
    4. Greve, T. & Teng, F. & Pollitt, M. & Strbac, G., 2017. "A system operator's utility function for the frequency response market," Cambridge Working Papers in Economics 1728, Faculty of Economics, University of Cambridge.
    5. He, Xian & Delarue, Erik & D'haeseleer, William & Glachant, Jean-Michel, 2011. "A novel business model for aggregating the values of electricity storage," Energy Policy, Elsevier, vol. 39(3), pages 1575-1585, March.
    6. McConnell, Dylan & Forcey, Tim & Sandiford, Mike, 2015. "Estimating the value of electricity storage in an energy-only wholesale market," Applied Energy, Elsevier, pages 422-432.
    7. Steffen, Bjarne & Weber, Christoph, 2016. "Optimal operation of pumped-hydro storage plants with continuous time-varying power prices," European Journal of Operational Research, Elsevier, vol. 252(1), pages 308-321.
    8. Wolf-Peter, Schill, 2011. "Electric vehicles in imperfect electricity markets: The case of Germany," Energy Policy, Elsevier, vol. 39(10), pages 6178-6189, October.
    9. Nyamdash, Batsaikhan & Denny, Eleanor, 2013. "The impact of electricity storage on wholesale electricity prices," Energy Policy, Elsevier, vol. 58(C), pages 6-16.
    10. Steffen, Bjarne, 2012. "Prospects for pumped-hydro storage in Germany," Energy Policy, Elsevier, vol. 45(C), pages 420-429.
    11. Zafirakis, Dimitrios & Chalvatzis, Konstantinos J. & Baiocchi, Giovanni & Daskalakis, George, 2013. "Modeling of financial incentives for investments in energy storage systems that promote the large-scale integration of wind energy," Applied Energy, Elsevier, pages 138-154.
    12. Ramteen Sioshansi & Paul Denholm & Thomas Jenkin, 2012. "Market and Policy Barriers to Deployment of Energy Storage," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    13. 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.
    14. Abujarad, Saleh Y. & Mustafa, M.W. & Jamian, J.J., 2017. "Recent approaches of unit commitment in the presence of intermittent renewable energy resources: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 70(C), pages 215-223.
    15. Sioshansi, Ramteen, 2014. "When energy storage reduces social welfare," Energy Economics, Elsevier, vol. 41(C), pages 106-116.
    16. Zafirakis, Dimitrios & Chalvatzis, Konstantinos J. & Baiocchi, Giovanni & Daskalakis, Georgios, 2016. "The value of arbitrage for energy storage: Evidence from European electricity markets," Applied Energy, Elsevier, pages 971-986.
    17. Bjarne Steffen, 2011. "Prospects for pumped-hydro storage in Germany," EWL Working Papers 1107, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Dec 2011.
    18. Steffen, Bjarne & Weber, Christoph, 2013. "Efficient storage capacity in power systems with thermal and renewable generation," Energy Economics, Elsevier, pages 556-567.

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    JEL classification:

    • F0 - International Economics - - General

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