Abstract
In this paper, we investigate whether and under which conditions jointly owning a variable renewable source of electricity (VRES) and an electricity storage generates economies of scope in competitive electricity markets. Using a simple stochastic optimization model that assumes frictionless markets, we analytically show that no economic benefit arises from combining the two assets. This finding is in contradiction to large parts of the literature, which claim that it is in the economic interest of owners of VRES to additionally own electricity storage. We also identify circumstances where our argument does not hold and the combination of storage and VRES could theoretically make economic sense on the level of individual agents. In the last part of the paper, we demonstrate in a numerical case study of the German market that even in cases where our theoretical results do not hold, tying together storage and VRES may produce suboptimal results.
Highlights
T HE increasing share of variable renewable sources of electricity (VRES) such as wind and solar power has brought about a considerable change to electricity systems in many countries
We compare the revenues generated by the joint planning of a wind farm and a storage unit when trading on the day-ahead (DA) and intraday (ID) market in Germany with the revenues generated by separately planning the assets, whereby the storage participates in the market for secondary control reserve (SRL)
In a time where storage technologies are looked at as a means to regulate our energy needs and to meet our climate goals, it is our intention to provide a framework for a more careful and principled study of the economics of scope arising from the combination of an energy storage with VRES
Summary
T HE increasing share of variable renewable sources of electricity (VRES) such as wind and solar power has brought about a considerable change to electricity systems in many countries. Electricity storage offers the flexibility to mitigate these problems and stabilize electricity systems, potentially generating welfare gains for the respective societies [1] Many authors take this logic one step further and postulate that owners of VRES can generate economies of scope from owning electricity storage, i.e., that the above argument extends from the system level to the portfolio level of individual agents [2]. One prevailing justification of this idea is that a storage would serve as a buffer, assisting the VRES to adjust its outputs in order to honor its commitments to the market thereby avoiding balancing costs [3] Another common argument for joint ownership is based on the fact that owners of variable production cannot adapt their production to take advantage of fluctuating market prices [4], [5].
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