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Increasing the Value of Wind with Energy Storage

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  • Ramteen Sioshansi

Abstract

One economic disincentive to investing in wind generation is that the average market value of wind energy can be lower than that of other generation technologies. This is driven by the exercise of market power by other generators and the fact that the ability of these generators to exercise market power is inversely related to real-time wind availability. We examine the use of energy storage to mitigate this price suppression by shifting wind generation from periods with low prices to periods with higher prices. We show that storage can significantly increase the value of wind generation but the currently high capital cost of storage technologies cannot be justified on the basis of this use. Moreover, we demonstrate that this use of storage can reduce consumer surplus, the profits of other non-wind generators, and social welfare. We also examine the sensitivity of these effects to a number of parameters including storage size, storage efficiency, ownership structure, and market competitiveness--showing that a more-competitive market can make storage significantly more valuable to a wind generator.

Suggested Citation

  • Ramteen Sioshansi, 2011. "Increasing the Value of Wind with Energy Storage," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-30.
  • Handle: RePEc:aen:journl:2011v32-02-a01
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    Citations

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    Cited by:

    1. Daniel T. Kaffine & Brannin J. McBee & Jozef Lieskovsky, 2012. "Emissions savings from wind power generation: Evidence from Texas, California and the Upper Midwest," Working Papers 2012-03, Colorado School of Mines, Division of Economics and Business.
    2. Lion Hirth, 2013. "The Market Value of Variable Renewables. The Effect of Solar and Wind Power Variability on their Relative Price," RSCAS Working Papers 2013/36, European University Institute.
    3. Osmani, Atif & Zhang, Jun, 2014. "Optimal grid design and logistic planning for wind and biomass based renewable electricity supply chains under uncertainties," Energy, Elsevier, vol. 70(C), pages 514-528.
    4. Daniel T. Kaffine, Brannin J. McBee, and Jozef Lieskovsky, 2013. "Emissions Savings from Wind Power Generation in Texas," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    5. Han, Jinil & Papavasiliou, Anthony, 2015. "Congestion management through topological corrections: A case study of Central Western Europe," Energy Policy, Elsevier, vol. 86(C), pages 470-482.
    6. Nyamdash, Batsaikhan & Denny, Eleanor, 2013. "The impact of electricity storage on wholesale electricity prices," Energy Policy, Elsevier, vol. 58(C), pages 6-16.
    7. repec:gam:jsusta:v:9:y:2017:i:10:p:1797-:d:114067 is not listed on IDEAS
    8. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
    9. 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, vol. 105(C), pages 138-154.
    10. 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).
    11. Madlener, Reinhard & Latz, Jochen, 2013. "Economics of centralized and decentralized compressed air energy storage for enhanced grid integration of wind power," Applied Energy, Elsevier, vol. 101(C), pages 299-309.
    12. Jean-Luc Gaffard & Mauro Napoletano, 2012. "Agent-based models and economic policy," Sciences Po publications info:hdl:2441/53r60a8s3ku, Sciences Po.
    13. Stefano Cló & Gaetano D’Adamo, 2014. "The Impact of Solar Penetration on Solar and Gas Market Value: an application to the Italian Power Market," Working Papers 1405, Department of Applied Economics II, Universidad de Valencia.
    14. Clò, Stefano & Cataldi, Alessandra & Zoppoli, Pietro, 2015. "The merit-order effect in the Italian power market: The impact of solar and wind generation on national wholesale electricity prices," Energy Policy, Elsevier, vol. 77(C), pages 79-88.
    15. Wooyoung Jeon, Jung Youn Mo, and Timothy D. Mount, 2015. "Developing a Smart Grid that Customers can Afford: The Impact of Deferrable Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    16. Sioshansi, Ramteen, 2014. "When energy storage reduces social welfare," Energy Economics, Elsevier, vol. 41(C), pages 106-116.
    17. 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, vol. 184(C), pages 971-986.
    18. Clò, Stefano & D'Adamo, Gaetano, 2015. "The dark side of the sun: How solar power production affects the market value of solar and gas sources," Energy Economics, Elsevier, vol. 49(C), pages 523-530.
    19. Mills, Andrew D. & Wiser, Ryan H., 2015. "Strategies to mitigate declines in the economic value of wind and solar at high penetration in California," Applied Energy, Elsevier, vol. 147(C), pages 269-278.
    20. repec:spo:wpecon:info:hdl:2441/53r60a8s3kup1vc9l564igg8g is not listed on IDEAS
    21. Sapio, Alessandro, 2015. "The effects of renewables in space and time: A regime switching model of the Italian power price," Energy Policy, Elsevier, vol. 85(C), pages 487-499.
    22. Sapio, Alessandro & Spagnolo, Nicola, 2016. "Price regimes in an energy island: Tacit collusion vs. cost and network explanations," Energy Economics, Elsevier, vol. 55(C), pages 157-172.

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    JEL classification:

    • F0 - International Economics - - General

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