Participation of an Energy Storage Aggregator in Electricity Markets

TL;DR

This paper analyzes how energy storage aggregators participate in electricity markets, focusing on their relationships with storage units and their impact on system welfare, proposing a pricing scheme to mitigate market power abuse.

Contribution

It provides a long-term cooperation model between aggregators and storage units and introduces a pricing scheme to regulate market power of aggregators.

Findings

Aggregators benefit the system regardless of size or market power.

Long-term relationships are more beneficial than short-term ones.

A pricing scheme can mitigate market power abuse.

Abstract

An important function of aggregators is to enable the participation of small energy storage units in electricity markets. This paper studies two generally overlooked aspects related to aggregators of energy storage: i) the relationship between the aggregator and its constituent storage units and ii) the aggregator's effect on system welfare. Regarding i), we show that short-term outcomes can be Pareto-inefficient: all players could be better-off. In practice, however, aggregators and storage units are likely to engage in long rather than short-term relationships. Using Nash Bargaining Theory, we show that aggregators and storage units are likely to cooperate in the long-term. A rigorous understanding of the aggregator-storage unit relationship is fundamental to model the aggregator's participation in the market. Regarding ii), we first show that a profit-seeking energy storage aggregator is always beneficial to the system when compared to a system without storage, regardless of size or market power the aggregator may have. However, due to market power, a monopolist aggregator may act in a socially suboptimal manner. We propose a pricing scheme designed to mitigate market power abuse by the aggregator. This pricing scheme has several important characteristics: its formulation requires no private information, it incentivizes a rational aggregator to behave in a socially optimal manner, and allows for regulation of the aggregator's profit.