Market Power and Withholding Behavior of Energy Storage Units

TL;DR

This paper develops a framework to identify and analyze market power and strategic withholding behaviors of energy storage units in electricity markets, helping ensure market competitiveness and resilience.

Contribution

It introduces a novel price sensitivity model and ex-post analysis method to differentiate strategic withholding from competitive bidding in storage units.

Findings

Storage units can exploit market inefficiencies for profit.

Significant price volatility enables profit for both market power exercisers and strategic bidders.

The framework effectively detects potential market power abuse.

Abstract

Electricity markets are experiencing a rapid increase in energy storage unit participation. Unlike conventional generation resources, quantifying the competitive operation and identifying if a storage unit is exercising market power is challenging, particularly in the context of multi-interval bidding strategies. We present a framework to differentiate strategic capacity withholding behaviors attributed to market power from inherent competitive bidding in storage unit strategies. Our framework evaluates the profitability of strategic storage unit participation, analyzing bidding behaviors as both price takers and price makers using a self-scheduling model, and investigates how they leverage market inefficiencies. Specifically, we propose a price sensitivity model derived from the linear supply function equilibrium model to examine the price-anticipating bidding strategy, effectively capturing the influence of market power. We introduce a sufficient ex-post analysis for market operators to identify potential exploitative behaviors by monitoring instances of withholding within the bidding profiles, ensuring market resilience and competitiveness. We discuss and verify applicability of the proposed framework to realistic settings. Our analysis substantiates commonly observed economic bidding behaviors of storage units. Furthermore, it demonstrates that significant price volatility offers considerable profit opportunities not only for participants possessing market power but also for typical strategic profit seekers.