Pricing and remunerating electricity storage flexibility using virtual links

Abstract

Ambitious renewable portfolio standards motivate the mass deployment of energy storage resources (ESR) as sources of flexibility. As such, the design of electricity markets that properly remunerate the provision of flexibility services by ESRs is under active development. In this paper, we propose a new market clearing framework that incorporates ESR systems. Compared to existing market designs, our approach models ESR systems using the concept of virtual links (VLs), which capture the transfer/shift of power across time. The VL representation reveals economic incentives available for ESR operations and sheds light into how electricity markets should remunerate ESRs. Our framework also allows us to explore the role of ESR physical parameters on market behavior; specifically, we show that, while energy and power capacity defines the amount of flexibility each ESR can provide, charge/discharge efficiencies play a fundamental role in ESR remuneration and in the ability of the power grid to mitigate market price volatility. The new market design is also computationally attractive in that it is a linear program and thus avoids mixed-integer formulations and formulations with complementarity constraints (used in current designs to capture binary charge/discharge logic). We use our market framework to analyze the interplay between ESRs and market operators and to provide insights into optimal deployment strategies for ESRs in power grids.