Risk-Averse Self-Scheduling of Storage in Decentralized Markets

TL;DR

This paper investigates how risk aversion influences storage scheduling in decentralized energy markets, revealing that risk-averse storage tends to focus on short-term arbitrage and ignores many high or low price periods, affecting market response.

Contribution

It introduces a stochastic self-scheduling framework to analyze risk-averse storage behavior using real-world data, highlighting the impact of risk preferences on operational decisions.

Findings

Risk-averse storage mainly engages in short-term arbitrage.

Storage often remains idle during high and low price periods.

Risk aversion leads to myopic operational strategies.

Abstract

Storage is expected to be a critical source of firming in low-carbon grids. A common concern raised from ex-post assessments is that storage resources can fail to respond to strong price signals during times of scarcity. While commonly attributed to forecast error or failures in operations, we posit that this behavior can be explained from the perspective of risk-averse scheduling. Using a stochastic self-scheduling framework and real-world data harvested from the Australian National Electricity Market, we demonstrate that risk-averse storage resources tend to have a myopic operational perspective, that is, they typically engage in near-term price arbitrage and chase only few extreme price spikes and troughs, thus remaining idle in several time periods with markedly high and low prices. This has important policy implications given the non-transparency of unit risk aversion and apparent risk in intervention decision-making.