Optimal Participation of Price-maker Battery Energy Storage Systems in Energy and Ancillary Services Markets Considering Degradation Cost

TL;DR

This paper develops a bi-level optimization model to analyze how price-maker battery energy storage systems can optimally participate in energy and ancillary services markets while accounting for degradation costs and market dynamics.

Contribution

It introduces an integrated framework combining degradation costs and AGC signal dispatch to optimize BESS market strategies and analyze their operational characteristics.

Findings

BESS can significantly increase profits by strategic market participation.

Battery degradation costs influence BESS bidding and operation strategies.

System load and ancillary service requirements impact BESS revenue and capacity decisions.

Abstract

This paper proposes a bi-level optimization framework to investigate the optimal market operation strategies of price-maker battery energy storage systems (BESSs) in real-time energy, spinning reserve, and pay as performance regulation markets, with a special focus on understanding BESS's excessive regulation market participation observed by several system operators and the impact of battery degradation cost on BESS market activities. An accurate battery degradation cost function is integrated into the BESS's strategic bidding model. An automatic generation control (AGC) signal dispatch model is proposed to deploy AGC signals in the bi-level framework. This enables thorough studies for BESS's operating characteristics in the frequency regulation market, when both battery degradation and detailed AGC signal following activities are considered. Case studies on a synthetic system with real-world data are performed to study interactions between BESS profit maximization and wholesale market operations, considering system annual load and ancillary service requirements variations. The impacts of BESS capacity and replacement cost on its revenue from energy and ancillary services markets are also investigated.