IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v88y2020ics0140988320300554.html

Utility-scale energy storage in an imperfectly competitive power sector

Author

Listed:
  • Virasjoki, Vilma
  • Siddiqui, Afzal S.
  • Oliveira, Fabricio
  • Salo, Ahti

Abstract

Interest in sustainability has increased the share of variable renewable energy sources (VRES) in power generation. Energy storage systems' potential to mitigate intermittencies from non-dispatchable VRES has enhanced their appeal. However, the impacts of storage vary based on the owner and market conditions. We examine the policy implications of investments in utility-scale battery storage via a bi-level optimization model. The lower level depicts power system operations, modeled as either perfect competition or Cournot oligopoly to allow for the assessment of producer market power. The upper-level investor is either a welfare-maximizer or a profit-maximizing standalone merchant to reflect either welfare enhancement or arbitrage, respectively. We implement a realistic case study for Western Europe based on all possible size-location storage investment combinations. We find that market competition affects investment sizes, locations, and their profitability more than the investor's objectives. A welfare-maximizer under perfect competition invests the most in storage capacity. Consumers typically gain most from storage investments in all cases, exceeding the gains for the investors. Specifically, our results show that storage investments may either not occur or be located differently than at social optimum, if market power is exerted. Thus, policy makers need to anticipate producer market power when setting regulation.

Suggested Citation

  • Virasjoki, Vilma & Siddiqui, Afzal S. & Oliveira, Fabricio & Salo, Ahti, 2020. "Utility-scale energy storage in an imperfectly competitive power sector," Energy Economics, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:eneeco:v:88:y:2020:i:c:s0140988320300554
    DOI: 10.1016/j.eneco.2020.104716
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988320300554
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2020.104716?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

    for a different version of it.

    References listed on IDEAS

    as
    1. Huppmann, Daniel & Egerer, Jonas, 2015. "National-strategic investment in European power transmission capacity," European Journal of Operational Research, Elsevier, vol. 247(1), pages 191-203.
    2. Reichenberg, Lina & Siddiqui, Afzal S. & Wogrin, Sonja, 2018. "Policy implications of downscaling the time dimension in power system planning models to represent variability in renewable output," Energy, Elsevier, vol. 159(C), pages 870-877.
    3. repec:aen:journl:ej40-4-sioshansi is not listed on IDEAS
    4. Nahmmacher, Paul & Schmid, Eva & Hirth, Lion & Knopf, Brigitte, 2016. "Carpe diem: A novel approach to select representative days for long-term power system modeling," Energy, Elsevier, vol. 112(C), pages 430-442.
    5. Gabriel, Steven A. & Leuthold, Florian U., 2010. "Solving discretely-constrained MPEC problems with applications in electric power markets," Energy Economics, Elsevier, vol. 32(1), pages 3-14, January.
    6. Neuhoff, Karsten & Barquin, Julian & Boots, Maroeska G. & Ehrenmann, Andreas & Hobbs, Benjamin F. & Rijkers, Fieke A.M. & Vazquez, Miguel, 2005. "Network-constrained Cournot models of liberalized electricity markets: the devil is in the details," Energy Economics, Elsevier, vol. 27(3), pages 495-525, May.
    7. Schill, Wolf-Peter & Kemfert, Claudia, 2011. "Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 32(3), pages 59-87.
    8. repec:aen:journl:32-3-a03 is not listed on IDEAS
    9. repec:aen:journl:2010v31-02-a07 is not listed on IDEAS
    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. Farzad Hassanzadeh Moghimi & Yihsu Chen & Afzal S. Siddiqui, 2023. "Flexible supply meets flexible demand: prosumer impact on strategic hydro operations," Computational Management Science, Springer, vol. 20(1), pages 1-35, December.
    2. Nikita Belyak & Steven A. Gabriel & Nikolay Khabarov & Fabricio Oliveira, 2023. "Renewable Energy Expansion under Taxes and Subsidies: A Transmission Operator's Perspective," Papers 2302.10562, arXiv.org, revised Apr 2024.
    3. Dirk Lauinger & Franc{c}ois Vuille & Daniel Kuhn, 2023. "Frequency Regulation with Storage: On Losses and Profits," Papers 2306.02987, arXiv.org, revised Mar 2024.
    4. Hassanzadeh Moghimi, Farzad & Boomsma, Trine K. & Siddiqui, Afzal S., 2024. "Transmission planning in an imperfectly competitive power sector with environmental externalities," Energy Economics, Elsevier, vol. 134(C).
    5. Tiago Andrade & Nikita Belyak & Andrew Eberhard & Silvio Hamacher & Fabricio Oliveira, 2022. "The p-Lagrangian relaxation for separable nonconvex MIQCQP problems," Journal of Global Optimization, Springer, vol. 84(1), pages 43-76, September.
    6. Victor-Gallardo, Luis & Quirós-Tortós, Jairo, 2023. "Techno-economic comparison of centralized and distributed power generation to support large-scale transport electrification in Costa Rica," Transport Policy, Elsevier, vol. 131(C), pages 120-138.
    7. Lauinger, Dirk & Vuille, François & Kuhn, Daniel, 2024. "Frequency regulation with storage: On losses and profits," European Journal of Operational Research, Elsevier, vol. 319(2), pages 442-455.
    8. Milstein, I. & Tishler, A. & Woo, C.K., 2025. "Modeling the effects of photovoltaic technology, battery storage, and electric vehicles on Israel's electricity market from 2030 to 2050," Utilities Policy, Elsevier, vol. 95(C).
    9. Chattopadhyay,Debabrata & Suski,Adam Krzysztof, 2022. "Should Electricity Market Designs Be Improved to Drive Decarbonization ?," Policy Research Working Paper Series 10207, The World Bank.

    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. Neetzow, Paul & Mendelevitch, Roman & Siddiqui, Sauleh, 2019. "Modeling coordination between renewables and grid: Policies to mitigate distribution grid constraints using residential PV-battery systems," Energy Policy, Elsevier, vol. 132(C), pages 1017-1033.
    2. Debia, Sébastien & Pineau, Pierre-Olivier & Siddiqui, Afzal S., 2021. "Strategic storage use in a hydro-thermal power system with carbon constraints," Energy Economics, Elsevier, vol. 98(C).
    3. Moiseeva, Ekaterina & Wogrin, Sonja & Hesamzadeh, Mohammad Reza, 2017. "Generation flexibility in ramp rates: Strategic behavior and lessons for electricity market design," European Journal of Operational Research, Elsevier, vol. 261(2), pages 755-771.
    4. Alexander Zerrahn & Daniel Huppmann, 2017. "Network Expansion to Mitigate Market Power," Networks and Spatial Economics, Springer, vol. 17(2), pages 611-644, June.
    5. Alexander Zerrahn & Daniel Huppmann, 2014. "Network Expansion to Mitigate Market Power: How Increased Integration Fosters Welfare," Discussion Papers of DIW Berlin 1380, DIW Berlin, German Institute for Economic Research.
    6. Lisa Göransson & Caroline Granfeldt & Ann-Brith Strömberg, 2021. "Management of Wind Power Variations in Electricity System Investment Models," SN Operations Research Forum, Springer, vol. 2(2), pages 1-30, June.
    7. Qu, Chunzi & Bang, Rasmus Noss, 2024. "European Grid Development Modeling and Analysis: Established Frameworks, Research Trends, and Future Opportunities," Discussion Papers 2024/11, Norwegian School of Economics, Department of Business and Management Science.
    8. Millinger, M. & Reichenberg, L. & Hedenus, F. & Berndes, G. & Zeyen, E. & Brown, T., 2022. "Are biofuel mandates cost-effective? - An analysis of transport fuels and biomass usage to achieve emissions targets in the European energy system," Applied Energy, Elsevier, vol. 326(C).
    9. Marcy, Cara & Goforth, Teagan & Nock, Destenie & Brown, Maxwell, 2022. "Comparison of temporal resolution selection approaches in energy systems models," Energy, Elsevier, vol. 251(C).
    10. Pepermans, Guido & Willems, Bert, 2010. "Cost Recovery in Congested Electricity Networks," Working Papers 2010/22, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    11. Hoffmann, Maximilian & Priesmann, Jan & Nolting, Lars & Praktiknjo, Aaron & Kotzur, Leander & Stolten, Detlef, 2021. "Typical periods or typical time steps? A multi-model analysis to determine the optimal temporal aggregation for energy system models," Applied Energy, Elsevier, vol. 304(C).
    12. Tejada-Arango, Diego A. & Wogrin, Sonja & Siddiqui, Afzal S. & Centeno, Efraim, 2019. "Opportunity cost including short-term energy storage in hydrothermal dispatch models using a linked representative periods approach," Energy, Elsevier, vol. 188(C).
    13. Jonas Egerer, 2016. "Open Source Electricity Model for Germany (ELMOD-DE)," Data Documentation 83, DIW Berlin, German Institute for Economic Research.
    14. Haugen, Mari & Blaisdell-Pijuan, Paris L. & Botterud, Audun & Levin, Todd & Zhou, Zhi & Belsnes, Michael & Korpås, Magnus & Somani, Abhishek, 2024. "Power market models for the clean energy transition: State of the art and future research needs," Applied Energy, Elsevier, vol. 357(C).
    15. Hoffmann, Maximilian & Kotzur, Leander & Stolten, Detlef, 2022. "The Pareto-optimal temporal aggregation of energy system models," Applied Energy, Elsevier, vol. 315(C).
    16. Pedro A. Neto & Terry L. Friesz & Ke Han, 2016. "Electric Power Network Oligopoly as a Dynamic Stackelberg Game," Networks and Spatial Economics, Springer, vol. 16(4), pages 1211-1241, December.
    17. Teichgraeber, Holger & Brandt, Adam R., 2022. "Time-series aggregation for the optimization of energy systems: Goals, challenges, approaches, and opportunities," Renewable and Sustainable Energy Reviews, Elsevier, vol. 157(C).
    18. David Pozo & Enzo Sauma & Javier Contreras, 2017. "Basic theoretical foundations and insights on bilevel models and their applications to power systems," Annals of Operations Research, Springer, vol. 254(1), pages 303-334, July.
    19. Grimm, Veronika & Martin, Alexander & Schmidt, Martin & Weibelzahl, Martin & Zöttl, Gregor, 2016. "Transmission and generation investment in electricity markets: The effects of market splitting and network fee regimes," European Journal of Operational Research, Elsevier, vol. 254(2), pages 493-509.
    20. Huppmann, Daniel & Egerer, Jonas, 2015. "National-strategic investment in European power transmission capacity," European Journal of Operational Research, Elsevier, vol. 247(1), pages 191-203.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    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:eneeco:v:88:y:2020:i:c:s0140988320300554. 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/locate/eneco .

    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.