Market Mechanisms for Energy Storage Planning and Operation in a Power Network

Abstract

We conduct a comparative analysis on three joint market mechanisms for energy storage investment and operation under locational marginal pricing: i) socially optimal storage investment with centralized operation, ii) profit-maximizing storage investment with centralized operation, and iii) profit-maximizing storage investment with deregulated operation. For the first mechanism (according to which a social planner centrally optimizes the sitting, sizing, and operation of batteries), we show that the revenue collected from storage operation exactly covers the investment cost at a social optimum. Under the last two mechanisms, a profit maximizing firm strategically determines the sitting and sizing of batteries, and the storage operation is either centrally optimized for cost minimization (mechanism ii) or completely controlled by the storage owner for profit maximization (mechanism iii). Numerical results on the IEEE 57-bus test system reveal that under profit-maximizing investment, the centralized and deregulated storage operations usually lead to almost identical outcomes (on installed storage capacity, social cost, and storage profit).