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Pricing Energy Storage in Real-time Market

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  • Cong Chen
  • Lang Tong
  • Ye Guo

Abstract

The problem of pricing utility-scale energy storage resources (ESRs) in the real-time electricity market is considered. Under a rolling-window dispatch model where the operator centrally dispatches generation and consumption under forecasting uncertainty, it is shown that almost all uniform pricing schemes, including the standard locational marginal pricing (LMP), result in lost opportunity costs that require out-of-the-market settlements. It is also shown that such settlements give rise to disincentives for generating firms and storage participants to bid truthfully, even when these market participants are rational price-takers in a competitive market. Temporal locational marginal pricing (TLMP) is proposed for ESRs as a generalization of LMP to an in-market discriminative form. TLMP is a sum of the system-wide energy price, LMP, and the individual state-of-charge price. It is shown that, under arbitrary forecasting errors, the rolling-window implementation of TLMP eliminates the lost opportunity costs and provides incentives to price-taking firms to bid truthfully with their marginal costs. Numerical examples show insights into the effects of uniform and non-uniform pricing mechanisms on dispatch following and truthful bidding incentives.

Suggested Citation

  • Cong Chen & Lang Tong & Ye Guo, 2021. "Pricing Energy Storage in Real-time Market," Papers 2101.10151, arXiv.org.
  • Handle: RePEc:arx:papers:2101.10151
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    References listed on IDEAS

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    1. Peter Cramton, 2017. "Electricity market design," Oxford Review of Economic Policy, Oxford University Press, vol. 33(4), pages 589-612.
    2. Robert Wilson, 2002. "Architecture of Power Markets," Econometrica, Econometric Society, vol. 70(4), pages 1299-1340, July.
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    Cited by:

    1. Peter Cramton & Emmanuele Bobbio & David Malec & Pat Sujarittanonta, 2022. "Electricity Markets in Transition: A Multi-Decade Micro-Model of Entry and Exit in Advanced Wholesale Markets," ECONtribute Discussion Papers Series 183, University of Bonn and University of Cologne, Germany.

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