Deleterious effects of strategic, profit-seeking energy storage operation on electric power system costs

Abstract

Energy storage will play a key role in the unfolding energy transition, but current market design and the modeling efforts that inform discussions surrounding its role broadly assume that these systems will not be deployed in ways deleterious to the objectives of the wider power grid. This is myopic: there are plausible and strategic modes of storage operation that clash with wider grid objectives while maximizing profits for storage system owners. Here we compare three modes: one that is commonly modeled and is broadly beneficial to the power system—peak shaving—with two plausible but deleterious ones—load leveraging and ramp augmenting—and show how the latter two increase system costs and help generators earn substantial profits even when they bid at marginal cost. Our work adds to a growing literature about the unintended consequences of energy storage on the power system and elaborates the essential role of policy makers and regulators in mitigating these effects.