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Stochastic Energy Demand And The Stabilization Value Of Energy Storage

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  • Tsur, Yacov
  • Zemel, Amos

Abstract

The economic value of energy storage to meet peak electricity demand is analyzed with an emphasis on the role of demand uncertainty. The concept of the stabilization value, which measures that part of the benefit of the storage project which is due solely to the stochastic demand components, is defined. The magnitude of the stabilization value, relative to the overall value of energy storage, is evaluated in terms of a simple model that accounts for the relevant characteristics of the electric power utility's production mix. It is found that neglecting the demand uncertainty can seriously bias the benefit assessment of the storage project as well as the determination of the optimal storage capacity.

Suggested Citation

  • Tsur, Yacov & Zemel, Amos, 1993. "Stochastic Energy Demand And The Stabilization Value Of Energy Storage," Staff Papers 14267, University of Minnesota, Department of Applied Economics.
    • Handle: RePEc:ags:umaesp:14267
    DOI: 10.22004/ag.econ.14267
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    References listed on IDEAS

    as
    1. Carlton, Dennis W, 1977. "Peak Load Pricing with Stochastic Demand," American Economic Review, American Economic Association, vol. 67(5), pages 1006-1010, December.
    2. John C. Panzar, 1976. "A Neoclassical Approach to Peak Load Pricing," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 521-530, Autumn.
    3. Devarajan, Shantayanan & Weiner, Robert J., 1989. "Dynamic policy coordination: Stockpiling for energy security," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 9-22, January.
    4. Dreze, Jacques H. & Modigliani, Franco, 1972. "Consumption decisions under uncertainty," Journal of Economic Theory, Elsevier, vol. 5(3), pages 308-335, December.
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    Resource /Energy Economics and Policy;

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