IDEAS home Printed from
   My bibliography  Save this article

Economic viability of energy storage systems based on price arbitrage potential in real-time U.S. electricity markets


  • Bradbury, Kyle
  • Pratson, Lincoln
  • Patiño-Echeverri, Dalia


Energy storage systems (ESSs) can increase power system stability and efficiency, and facilitate integration of intermittent renewable energy, but deployment of ESSs will remain limited until they achieve an attractive internal rate of return (IRR). Linear optimization is used to find the ESS power and energy capacities that maximize the IRR when used to arbitrage 2008 electricity prices (the highest of the past decade) in seven real-time markets in the United States for 14 different ESS technologies. Any reductions in capital costs needed to achieve an IRR of 10% are solved for. Results show that the profit-maximizing size (i.e. hours of energy storage) of an ESS is primarily determined by its technological characteristics (round-trip charge/discharge efficiency and self-discharge) and not market price volatility, which instead increases IRR. Most ESSs examined have an optimal size of 1–4h of energy storage, though for pumped hydro and compressed air systems this size is 7–8h. The latter ESSs already achieve IRRs >10%, but could be made even more profitable with minimal cost-reductions by reducing power capacity costs. The opposite holds for Flywheels, electrical ESSs (e.g., capacitors) and a number of chemical ESSs (e.g., lead acid batteries). These could be made more profitable with minimal cost-reductions by reducing energy capacity costs.

Suggested Citation

  • Bradbury, Kyle & Pratson, Lincoln & Patiño-Echeverri, Dalia, 2014. "Economic viability of energy storage systems based on price arbitrage potential in real-time U.S. electricity markets," Applied Energy, Elsevier, vol. 114(C), pages 512-519.
  • Handle: RePEc:eee:appene:v:114:y:2014:i:c:p:512-519
    DOI: 10.1016/j.apenergy.2013.10.010

    Download full text from publisher

    File URL:
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Yang, Chi-Jen & Jackson, Robert B., 2011. "Opportunities and barriers to pumped-hydro energy storage in the United States," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(1), pages 839-844, January.
    2. Hessami, Mir-Akbar & Bowly, David R., 2011. "Economic feasibility and optimisation of an energy storage system for Portland Wind Farm (Victoria, Australia)," Applied Energy, Elsevier, vol. 88(8), pages 2755-2763, August.
    3. Drury, Easan & Denholm, Paul & Sioshansi, Ramteen, 2011. "The value of compressed air energy storage in energy and reserve markets," Energy, Elsevier, vol. 36(8), pages 4959-4973.
    4. Kazempour, S. Jalal & Moghaddam, M. Parsa & Haghifam, M.R. & Yousefi, G.R., 2009. "Electric energy storage systems in a market-based economy: Comparison of emerging and traditional technologies," Renewable Energy, Elsevier, vol. 34(12), pages 2630-2639.
    5. van der Linden, Septimus, 2006. "Bulk energy storage potential in the USA, current developments and future prospects," Energy, Elsevier, vol. 31(15), pages 3446-3457.
    6. Ibrahim, H. & Ilinca, A. & Perron, J., 2008. "Energy storage systems--Characteristics and comparisons," Renewable and Sustainable Energy Reviews, Elsevier, vol. 12(5), pages 1221-1250, June.
    7. Walawalkar, Rahul & Apt, Jay & Mancini, Rick, 2007. "Economics of electric energy storage for energy arbitrage and regulation in New York," Energy Policy, Elsevier, vol. 35(4), pages 2558-2568, April.
    8. Sioshansi, Ramteen & Denholm, Paul & Jenkin, Thomas & Weiss, Jurgen, 2009. "Estimating the value of electricity storage in PJM: Arbitrage and some welfare effects," Energy Economics, Elsevier, vol. 31(2), pages 269-277, March.
    9. McKenna, Eoghan & McManus, Marcelle & Cooper, Sam & Thomson, Murray, 2013. "Economic and environmental impact of lead-acid batteries in grid-connected domestic PV systems," Applied Energy, Elsevier, vol. 104(C), pages 239-249.
    10. Sioshansi, Ramteen & Denholm, Paul & Jenkin, Thomas, 2011. "A comparative analysis of the value of pure and hybrid electricity storage," Energy Economics, Elsevier, vol. 33(1), pages 56-66, January.
    11. Wade, N.S. & Taylor, P.C. & Lang, P.D. & Jones, P.R., 2010. "Evaluating the benefits of an electrical energy storage system in a future smart grid," Energy Policy, Elsevier, vol. 38(11), pages 7180-7188, November.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Energy storage; Power markets; Arbitrage;


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:appene:v:114:y:2014:i:c:p:512-519. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.