Strategic Storage Investment in Electricity Markets

TL;DR

This paper models strategic investment in electricity storage as a non-cooperative game, analyzing how investor behaviors impact market prices, profits, and total storage capacity using California ISO data.

Contribution

It introduces a game-theoretic framework for analyzing strategic storage investments and computes market equilibrium considering multiple investors with different storage characteristics.

Findings

More investors increase market competition and total storage capacity.

Higher storage efficiency significantly boosts individual investor profits.

Increased number of investors reduces individual profits but raises total storage capacity.

Abstract

Arbitrage is one important revenue source for energy storage in electricity markets. However, a large amount of storage in the market will impact the energy price and reduce potential revenues. This can lead to strategic behaviors of profit-seeking storage investors. To study the investors' strategic storage investments, we formulate a non-cooperative game between competing investors. Each investor decides the storage investment over a long investment horizon, and operates the storage for arbitrage revenues in the daily electricity market. Different investors can deploy storage with different characteristics. Their decisions are coupled due to the market price that is determined by all the investors' decisions. We use market data from California ISO to characterize the storage impact on the market price, based on which we establish a centralized optimization problem to compute the market equilibrium. We show that an increasing number of investors will increase the market competition, which reduces investors' profits but increases the total invested storage capacity. Furthermore, we find that a slight increase in the storage efficiency (e.g., increased charge and discharge efficiency) can significantly improve an investor's profit share in the market.