Pricing Energy Storage in Real-time Market

TL;DR

This paper introduces Temporal Locational Marginal Pricing (TLMP) for energy storage in real-time markets, addressing issues of lost opportunity costs and bidding incentives present in traditional uniform pricing schemes.

Contribution

It proposes TLMP as a novel pricing scheme that eliminates lost opportunity costs and encourages truthful bidding in real-time energy markets with storage.

Findings

TLMP removes lost opportunity costs under forecasting errors.

TLMP incentivizes truthful bidding from market participants.

Numerical examples demonstrate advantages over uniform pricing schemes.

Abstract

The problem of pricing utility-scale energy storage resources (ESRs) in the real-time electricity market is considered. Under a rolling-window dispatch model where the operator centrally dispatches generation and consumption under forecasting uncertainty, it is shown that almost all uniform pricing schemes, including the standard locational marginal pricing (LMP), result in lost opportunity costs that require out-of-the-market settlements. It is also shown that such settlements give rise to disincentives for generating firms and storage participants to bid truthfully, even when these market participants are rational price-takers in a competitive market. Temporal locational marginal pricing (TLMP) is proposed for ESRs as a generalization of LMP to an in-market discriminative form. TLMP is a sum of the system-wide energy price, LMP, and the individual state-of-charge price. It is shown that, under arbitrary forecasting errors, the rolling-window implementation of TLMP eliminates the lost opportunity costs and provides incentives to price-taking firms to bid truthfully with their marginal costs. Numerical examples show insights into the effects of uniform and non-uniform pricing mechanisms on dispatch following and truthful bidding incentives.