Energy Storage in Wholesale Electricity Markets: The Economics of a Paradigm Shift
Paper Session
Sunday, Jan. 9, 2022 10:00 AM - 12:00 PM (EST)
- Chair: Justin Kirkpatrick, Michigan State University
Spillovers from Ancillary Services to Wholesale Power Markets: Implications for Climate Policy
Abstract
In electricity markets, generators are rewarded both for providing energy and for enabling grid reliability. The two functions are compensated in separate markets: energy markets and ancillary services markets. We provide evidence of changes in the fuel mix in the energy market that is driven by exogenous changes in an ancillary services market. We provide quasi-experimental evidence and a theoretical framework for understanding the mechanism, showing that it results from the multi-product nature of conventional power plants combined with discontinuities in costs. As a result, policy changes relating to grid operations, grid reliability, or climate change could have unintended effects.Estimating Congestion Benefits of Batteries for Unobserved Networks: A Machine Learning Approach
Abstract
Energy storage investment in the U.S. exceeded $2.5B annually in 2020 largely due to state-level mandates and subsidies. The justification for these policies is that energy storage facilitates grid integration of renewable generation by smoothing out the frequency and severity of price spikes due to intermittent renewable supply. While operators of energy storage generate private returns through arbitrage of diurnal price differences, ratepayer benefits are derived from decreases in these price spikes. The result is a transfer from infra-marginal generators to retail utilities and consumers. This paper presents empirical estimates of energy storage price effects in California where the locations and hourly prices for 372MW of energy storage are observed. Results suggest that one megawatt of energy storage decreases evening peak prices by up to 2.2% at the pricing node where the storage is installed, a benefit to ratepayers of $62,467 per year. This effect coincides with the late-afternoon increase in electricity prices associated with intermittent solar generation. A Double Pooled LASSO-based estimator is used to uncover the unobserved network structure in order to estimate the price effects of storage at other locations across the grid. Together, the combined results suggest that energy storage mandates in California are partially justified by ratepayer benefits.Market Dynamics in Cleaner Power Systems
Abstract
The transition in the power systems plays a significant role in efforts regards to a low-carbon economy. These policies help lower emissions by offsetting high-emitting electricity generation with clean energy. For zero-emission targets, this transition towards cleaner energy should be accompanied by the retirement of thermal generators to clean the energy mix in the power sector. In this paper, I build a framework to quantify the offset and revenue impact of energy storage technologies and large-scale renewables and apply it to study the South Australian Electricity Market. I first show that reduced-form methods are biased as the scale of the additional capacity increases. My results highlight that the substitution patterns and revenue impact differ considerably with different investment sizes. The offset and negative shock shifts from low-cost inflexible generators to high-cost flexible generators, while the revenue impact is the highest on existing non-dispatchable generation. These results have some policy implications on generation mix targets' long-run effects on the market dynamics and the project selection given the subsidy scheme.JEL Classifications
- L9 - Industry Studies: Transportation and Utilities
- Q4 - Energy