How does price subsidy to energy storage enterprises affect auxiliary service supply? A market equilibrium analysis

Energy storage enterprises are becoming new essential suppliers in auxiliary service markets in many countries and regions. Governments usually offer price subsidies to encourage their participation. This research constructed an oligopolistic market structure that has several energy storage and traditional thermal power enterprises, described the production decision process of these enterprises, obtained their optimal output, and presented market equilibrium results. Based on this, the effects of two (fixed and diminished) price subsidy mechanisms were also measured. Numerical simulation validated the models and revealed the following facts. (I) Compared with fixed price subsidy, diminished price subsidy is better for energy storage enterprises that have high operation costs, helps maintain a sufficient installed capacity, but has lower subsidy efficiency and is difficult to implement. (II) There exists the most ineffective subsidy level, and governments should avoid setting subsidy levels close to it. (III) Subsidy levels have an upper limit. Subsidies exceeding this limit not only increase the government expenditure exponentially but also reduce incentives to energy storage enterprises in reducing the operation cost. (IV) Both price subsidy mechanisms have ineffective expenditure, but setting a subsidy threshold can remedy this issue.