A market mechanism for truthful bidding with energy storage

Abstract

This paper proposes a market mechanism for multi-interval electricity markets with generator and storage participants. Drawing ideas from supply function bidding, we introduce a novel bid structure for storage participation that allows storage units to communicate their cost to the market using energy-cycling functions that map prices to cycle depths. The resulting market-clearing process – implemented via convex programming – yields corresponding schedules and payments based on traditional energy prices for power supply and per-cycle prices for storage utilization. We illustrate the benefits of our solution by comparing the competitive equilibrium – assuming price-taker participants – of the resulting mechanism to that of an alternative solution that uses prosumer-based bids. Our solution shows several advantages over the standard prosumer-based approach that prices energy per slot. It does not require a priori price estimation. It also incentivizes participants to reveal their truthful cost, thus leading to an efficient, competitive equilibrium. Numerical experiments using New York Independent System Operator (NYISO) data validate our findings.