IDEAS home Printed from https://ideas.repec.org/a/eee/appene/v125y2014icp93-102.html
   My bibliography  Save this article

The value of energy storage in South Korea’s electricity market: A Hotelling approach

Author

Listed:
  • Shcherbakova, Anastasia
  • Kleit, Andrew
  • Cho, Joohyun

Abstract

In this study we evaluate the economic potential for energy arbitrage by simulating operation and resulting profits of a small price-taking storage device in South Korea’s electricity market. As demand for electricity continues to grow, maintaining a balanced power system at all times has become more challenging in Korea and other developed nations. Along with demand response programs and increased renewable energy utilization, energy storage devices may provide a viable way to contribute to diurnal peak demand shaving. In some parts of the U.S. storage arbitrage has proven to be profitable. Treating a battery’s ability to charge and discharge as a scarce resource, we apply the Hotelling (1931) rule to determine a strategy for maximizing the value of the battery. Results show that present market conditions in South Korea do not provide sufficient economic incentives for energy arbitrage using sodium–sulfur (NaS) or lithium-ion (Li-ion) batteries, with the capital cost of the storage devices exceeding potential revenues.

Suggested Citation

  • Shcherbakova, Anastasia & Kleit, Andrew & Cho, Joohyun, 2014. "The value of energy storage in South Korea’s electricity market: A Hotelling approach," Applied Energy, Elsevier, vol. 125(C), pages 93-102.
    • Handle: RePEc:eee:appene:v:125:y:2014:i:c:p:93-102
    DOI: 10.1016/j.apenergy.2014.03.046
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0306261914002773
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.apenergy.2014.03.046?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

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

    References listed on IDEAS

    as
    1. Nagl, Stephan & Fürsch, Michaela & Jägemann, Cosima & Bettzüge, Marc Oliver, 2011. "The economic value of storage in renewable power systems - the case of thermal energy storage in concentrating solar plants," EWI Working Papers 2011-8, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    2. Rudolf, Viktor & Papastergiou, Konstantinos D., 2013. "Financial analysis of utility scale photovoltaic plants with battery energy storage," Energy Policy, Elsevier, vol. 63(C), pages 139-146.
    3. Sang In Kang & Jin-gyu Oh & Hongseok Kim, 2012. "Korea's Low-Carbon Green Growth Strategy," OECD Development Centre Working Papers 310, OECD Publishing.
    4. 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.
    5. Krajačić, Goran & Lončar, Dražen & Duić, Neven & Zeljko, Mladen & Lacal Arántegui, Roberto & Loisel, Rodica & Raguzin, Igor, 2013. "Analysis of financial mechanisms in support to new pumped hydropower storage projects in Croatia," Applied Energy, Elsevier, vol. 101(C), pages 161-171.
    6. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39, pages 137-137.
    7. Mulder, Grietus & Six, Daan & Claessens, Bert & Broes, Thijs & Omar, Noshin & Mierlo, Joeri Van, 2013. "The dimensioning of PV-battery systems depending on the incentive and selling price conditions," Applied Energy, Elsevier, vol. 111(C), pages 1126-1135.
    8. Xian HE & Georg ZACHMANN, 2010. "Catching the maximum market value of electricity storage – technical, economic and regulatory aspect," RSCAS Working Papers 2010/02, European University Institute.
    9. 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.
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chen, Yang & Odukomaiya, Adewale & Kassaee, Saiid & O’Connor, Patrick & Momen, Ayyoub M. & Liu, Xiaobing & Smith, Brennan T., 2019. "Preliminary analysis of market potential for a hydropneumatic ground-level integrated diverse energy storage system," Applied Energy, Elsevier, vol. 242(C), pages 1237-1247.
    2. Anaya, K. & Pollitt, M., 2018. "Storage Business Models: Lessons for Electricity from Natural Gas, Cloud Data and Frozen Food," Cambridge Working Papers in Economics 1810, Faculty of Economics, University of Cambridge.
    3. Enrico Telaretti & Mariano Ippolito & Luigi Dusonchet, 2015. "A Simple Operating Strategy of Small-Scale Battery Energy Storages for Energy Arbitrage under Dynamic Pricing Tariffs," Energies, MDPI, vol. 9(1), pages 1-20, December.
    4. Braeuer, Fritz & Rominger, Julian & McKenna, Russell & Fichtner, Wolf, 2019. "Battery storage systems: An economic model-based analysis of parallel revenue streams and general implications for industry," Applied Energy, Elsevier, vol. 239(C), pages 1424-1440.
    5. 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.
    6. Yu Ji & Xiaogang Hou & Lingfeng Kou & Ming Wu & Ying Zhang & Xiong Xiong & Baodi Ding & Ping Xue & Junlong Li & Yue Xiang, 2019. "Cost–Benefit Analysis of Energy Storage in Distribution Networks," Energies, MDPI, vol. 12(17), pages 1-23, September.
    7. Chen, Yang & Hu, Mengqi & Zhou, Zhi, 2017. "A data-driven analytical approach to enable optimal emerging technologies integration in the co-optimized electricity and ancillary service markets," Energy, Elsevier, vol. 122(C), pages 613-626.
    8. Zheng, Menglian & Meinrenken, Christoph J. & Lackner, Klaus S., 2015. "Smart households: Dispatch strategies and economic analysis of distributed energy storage for residential peak shaving," Applied Energy, Elsevier, vol. 147(C), pages 246-257.
    9. Yan, Xiaohe & Gu, Chenghong & Li, Furong & Xiang, Yue, 2018. "Network pricing for customer-operated energy storage in distribution networks," Applied Energy, Elsevier, vol. 212(C), pages 283-292.
    10. Sidhu, Arjan S. & Pollitt, Michael G. & Anaya, Karim L., 2018. "A social cost benefit analysis of grid-scale electrical energy storage projects: A case study," Applied Energy, Elsevier, vol. 212(C), pages 881-894.
    11. Telaretti, E. & Graditi, G. & Ippolito, M.G. & Zizzo, G., 2016. "Economic feasibility of stationary electrochemical storages for electric bill management applications: The Italian scenario," Energy Policy, Elsevier, vol. 94(C), pages 126-137.
    12. Fu, Yangyang & O'Neill, Zheng & Wen, Jin & Pertzborn, Amanda & Bushby, Steven T., 2022. "Utilizing commercial heating, ventilating, and air conditioning systems to provide grid services: A review," Applied Energy, Elsevier, vol. 307(C).
    13. Ding, Jie & Xu, Yujie & Chen, Haisheng & Sun, Wenwen & Hu, Shan & Sun, Shuang, 2019. "Value and economic estimation model for grid-scale energy storage in monopoly power markets," Applied Energy, Elsevier, vol. 240(C), pages 986-1002.
    14. Graditi, G. & Ippolito, M.G. & Telaretti, E. & Zizzo, G., 2016. "Technical and economical assessment of distributed electrochemical storages for load shifting applications: An Italian case study," Renewable and Sustainable Energy Reviews, Elsevier, vol. 57(C), pages 515-523.
    15. de Sisternes, Fernando J. & Jenkins, Jesse D. & Botterud, Audun, 2016. "The value of energy storage in decarbonizing the electricity sector," Applied Energy, Elsevier, vol. 175(C), pages 368-379.
    16. Cho, Joohyun & Kleit, Andrew N., 2015. "Energy storage systems in energy and ancillary markets: A backwards induction approach," Applied Energy, Elsevier, vol. 147(C), pages 176-183.
    17. Dufo-López, Rodolfo, 2015. "Optimisation of size and control of grid-connected storage under real time electricity pricing conditions," Applied Energy, Elsevier, vol. 140(C), pages 395-408.
    18. Meinrenken, Christoph J. & Mehmani, Ali, 2019. "Concurrent optimization of thermal and electric storage in commercial buildings to reduce operating cost and demand peaks under time-of-use tariffs," Applied Energy, Elsevier, vol. 254(C).
    19. Contreras, Javier & Rodríguez, Yeny E., 2014. "GARCH-based put option valuation to maximize benefit of wind investors," Applied Energy, Elsevier, vol. 136(C), pages 259-268.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cho, Joohyun & Kleit, Andrew N., 2015. "Energy storage systems in energy and ancillary markets: A backwards induction approach," Applied Energy, Elsevier, vol. 147(C), pages 176-183.
    2. Dufo-López, Rodolfo, 2015. "Optimisation of size and control of grid-connected storage under real time electricity pricing conditions," Applied Energy, Elsevier, vol. 140(C), pages 395-408.
    3. Wonchang Hur & Yongma Moon & Kwangsup Shin & Wooje Kim & Suchul Nam & Kijun Park, 2015. "Economic Value of Li-ion Energy Storage System in Frequency Regulation Application from Utility Firm’s Perspective in Korea," Energies, MDPI, vol. 8(6), pages 1-18, May.
    4. Lyons, P.F. & Wade, N.S. & Jiang, T. & Taylor, P.C. & Hashiesh, F. & Michel, M. & Miller, D., 2015. "Design and analysis of electrical energy storage demonstration projects on UK distribution networks," Applied Energy, Elsevier, vol. 137(C), pages 677-691.
    5. Berrada, Asmae & Loudiyi, Khalid & Zorkani, Izeddine, 2016. "Valuation of energy storage in energy and regulation markets," Energy, Elsevier, vol. 115(P1), pages 1109-1118.
    6. Graditi, G. & Ippolito, M.G. & Telaretti, E. & Zizzo, G., 2016. "Technical and economical assessment of distributed electrochemical storages for load shifting applications: An Italian case study," Renewable and Sustainable Energy Reviews, Elsevier, vol. 57(C), pages 515-523.
    7. Yongma Moon, 2014. "Optimal Time to Invest Energy Storage System under Uncertainty Conditions," Energies, MDPI, vol. 7(4), pages 1-19, April.
    8. Zakeri, Behnam & Syri, Sanna, 2015. "Electrical energy storage systems: A comparative life cycle cost analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 569-596.
    9. McConnell, Dylan & Forcey, Tim & Sandiford, Mike, 2015. "Estimating the value of electricity storage in an energy-only wholesale market," Applied Energy, Elsevier, vol. 159(C), pages 422-432.
    10. Dusonchet, L. & Favuzza, S. & Massaro, F. & Telaretti, E. & Zizzo, G., 2019. "Technological and legislative status point of stationary energy storages in the EU," Renewable and Sustainable Energy Reviews, Elsevier, vol. 101(C), pages 158-167.
    11. Telaretti, E. & Dusonchet, L., 2017. "Stationary battery technologies in the U.S.: Development Trends and prospects," Renewable and Sustainable Energy Reviews, Elsevier, vol. 75(C), pages 380-392.
    12. Brändle, Gregor & Schönfisch, Max & Schulte, Simon, 2020. "Estimating Long-Term Global Supply Costs for Low-Carbon Hydrogen," EWI Working Papers 2020-4, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI), revised 10 Aug 2021.
    13. Chang, Martin K. & Eichman, Joshua D. & Mueller, Fabian & Samuelsen, Scott, 2013. "Buffering intermittent renewable power with hydroelectric generation: A case study in California," Applied Energy, Elsevier, vol. 112(C), pages 1-11.
    14. Ding, Jie & Xu, Yujie & Chen, Haisheng & Sun, Wenwen & Hu, Shan & Sun, Shuang, 2019. "Value and economic estimation model for grid-scale energy storage in monopoly power markets," Applied Energy, Elsevier, vol. 240(C), pages 986-1002.
    15. Arcos-Vargas, Ángel & Canca, David & Núñez, Fernando, 2020. "Impact of battery technological progress on electricity arbitrage: An application to the Iberian market," Applied Energy, Elsevier, vol. 260(C).
    16. Núñez, Fernando & Canca, David & Arcos-Vargas, Ángel, 2022. "An assessment of European electricity arbitrage using storage systems," Energy, Elsevier, vol. 242(C).
    17. Metz, Dennis & Saraiva, João Tomé, 2018. "Simultaneous co-integration of multiple electrical storage applications in a consumer setting," Energy, Elsevier, vol. 143(C), pages 202-211.
    18. Ikechi Emmanuel, Michael & Denholm, Paul, 2022. "A market feedback framework for improved estimates of the arbitrage value of energy storage using price-taker models," Applied Energy, Elsevier, vol. 310(C).
    19. Berrada, Asmae & Loudiyi, Khalid & Zorkani, Izeddine, 2017. "Profitability, risk, and financial modeling of energy storage in residential and large scale applications," Energy, Elsevier, vol. 119(C), pages 94-109.
    20. 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.

    Corrections

    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:125:y:2014:i:c:p:93-102. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/description#description .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.