Market Impacts of Energy Storage in a Transmission-Constrained Power System

Abstract

Environmental concerns have motivated governments in the European Union and elsewhere to set ambitious targets for generation from renewable energy (RE) technologies and to offer subsidies for their adoption along with priority grid access. However, because RE technologies like solar and wind power are intermittent, their penetration places greater strain on existing conventional power plants that need to ramp up more often. In turn, energy storage technologies, e.g., pumped hydro storage or compressed air storage, are proposed to offset the intermittency of RE technologies and to facilitate their integration into the grid. We assess the economic and environmental consequences of storage via a complementarity model of a stylized Western European power system with market power, representation of the transmission grid, and uncertainty in RE output. Although storage helps to reduce congestion and ramping costs, it may actually increase greenhouse gas emissions from conventional power plants in a perfectly competitive setting. Conversely, strategic use of storage by producers renders it less effective at curbing both congestion and ramping costs, while having no net overall impact on emissions.