Bulk storage technologies in imperfect electricity markets under time-of-use pricing: Implications for the environment and social welfare

Abstract

It is presumed that energy storage will play an important role in absorbing variable renewable energy into power systems and may therefore be critical for decarbonizing the electricity sector. However, the conditions under which storage devices can successfully interact with other schemes of competing objectives are still poorly understood. Taking pumped hydro storage (PHS) as a specific example of bulk storage technologies, we contribute towards this gap by adopting a game-theoretic model of the electricity market to study the effects of electricity storage systems on CO2 emissions and social welfare considering time-of-use (TOU) pricing and an electricity market where firms may be able to exert market power. We show that storage operation is completely abandoned when market power is exerted. In addition, when there is a reverse order between renewable energy output and peak load, TOU pricing mechanism provides better opportunities for emissions reduction than storage devices although a synergy could be achieved. The outlook for social welfare is negative, albeit marginal, which is due to zero profits for producers and slight losses to consumer rent. These results have implications for economic policy and could stimulate new debate in the literature.