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The Theory of Storage in a Power System with Stochastic Demand

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  • Darryl Biggar
  • Mohammad Reza Hesamzadeh

Abstract

Electric power systems are increasingly turning to energy storage systems to balance supply and demand. But how much storage is required? What is the optimal volume of storage in a power system and on what does it depend? In addition, what form of hedge contracts do storage facilities require? We answer these questions in the special case in which the uncertainty in the power system involves successive draws of an independent, identically-distributed random variable. We characterize the conditions for the optimal operation of, and investment in, storage and show how these conditions can be understood graphically using price-duration curves. We also characterize the optimal hedge contracts for storage units.

Suggested Citation

  • Darryl Biggar & Mohammad Reza Hesamzadeh, 2025. "The Theory of Storage in a Power System with Stochastic Demand," Papers 2511.21327, arXiv.org.
    • Handle: RePEc:arx:papers:2511.21327
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    References listed on IDEAS

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    1. Das, Trishna & Krishnan, Venkat & McCalley, James D., 2015. "Assessing the benefits and economics of bulk energy storage technologies in the power grid," Applied Energy, Elsevier, vol. 139(C), pages 104-118.
    2. Biggar, Darryl R. & Hesamzadeh, Mohammad Reza, 2022. "An integrated theory of dispatch and hedging in wholesale electric power markets," Energy Economics, Elsevier, vol. 112(C).
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