Pricing and Remunerating Electricity Storage Flexibility Using Virtual Links

TL;DR

This paper introduces a novel market clearing framework for remunerating electricity storage systems using virtual links, improving computational efficiency and providing insights into optimal ESR deployment and market incentives.

Contribution

It proposes a new energy market design that uses virtual links to decompose ESR operations, revealing economic incentives and addressing computational challenges.

Findings

Storage efficiencies significantly influence ESR remuneration.

Virtual link approach clarifies ESR economic incentives.

Market design enhances computational tractability.

Abstract

Ambitious renewable portfolio standards motivate the incorporation of energy storage resources (ESR) as sources of flexibility. While the United States government aims to promote ESR participation in electricity markets, work on market designs for properly remunerating ESRs is still lacking. In this paper, we propose a new energy market clearing framework that incorporates ESR systems. The new market design is computationally attractive in that it avoids mixed-integer formulations and formulations with complementarity constraints. Moreover, compared to previous market designs, our market decomposes the operations of ESRs using the concept of virtual links, which capture the transfer of energy across time. The virtual link representation reveals economic incentives available for ESR operations and sheds light into how electricity markets should remunerate ESRs. We also explore the role of ESR physical parameters on market behavior; we show that, while energy and power capacity defines the amount of flexibility each ESR can provide, storage charge/discharge efficiencies play a fundamental role in ESR remuneration and in mitigating market price volatility. We use our proposed framework to analyze the interplay between ESRs and independent system operators (ISOs) and to provide insights into optimal deployment strategies of ESRs in power grids.