Optimal control of storage for arbitrage, with applications to energy systems

TL;DR

This paper develops an efficient optimal control algorithm for energy storage arbitrage, accounting for nonlinear costs, market impact, and inefficiencies, with practical applications demonstrated through real-world examples.

Contribution

It introduces a novel algorithm that optimally manages energy storage for arbitrage, considering complex system constraints and short-term decision dependencies.

Findings

Algorithm efficiently determines optimal storage management decisions.

Applicable to real-world energy arbitrage systems.

Handles nonlinear costs and system inefficiencies.

Abstract

We study the optimal control of storage which is used for arbitrage, i.e. for buying a commodity when it is cheap and selling it when it is expensive. Our particular concern is with the management of energy systems, although the results are generally applicable. We consider a model which may account for nonlinear cost functions, market impact, input and output rate constraints and inefficiencies or losses in the storage process. We develop an algorithm which is maximally efficient in then sense that it incorporates the result that, at each point in time, the optimal management decision depends only a finite, and typically short, time horizon. We give examples related to the management of a real-world system.