Chance-Constrained Energy Storage Pricing for Social Welfare Maximization

TL;DR

This paper introduces a chance-constrained framework for energy storage pricing that maximizes social welfare, providing a systematic approach for market operators to set storage bids considering uncertainty.

Contribution

It develops a novel two-stage chance-constrained model for energy storage pricing, incorporating system constraints and uncertainty, with analytical and empirical validation.

Findings

Storage opportunity cost is convex and increases with load uncertainty.

Storage opportunity prices are bounded and linearly related to future prices.

The proposed market design reduces payments by 17.4% and system costs by 3.9%.

Abstract

This paper proposes a novel framework to price energy storage in economic dispatch with a social welfare maximization objective. This framework can be utilized by power system operators to generate default bids for storage or to benchmark market power in bids submitted by storage participants. We derive a theoretical framework based on a two-stage chance-constrained formulation which systematically incorporates system balance constraints and uncertainty considerations. We present tractable reformulations for the joint chance constraints. Analytical results show that the storage opportunity cost is convex and increases with greater net load uncertainty. We also show that the storage opportunity prices are bounded and are linearly coupled with future energy and reserve prices. We demonstrate the effectiveness of the proposed approach on an ISO-NE test system and compare it with a price-taker storage profit-maximizing bidding model. Simulation results show that the proposed market design reduces electricity payments by an average of 17.4% and system costs by 3.9% while reducing storage's profit margins, and these reductions scale up with the renewable and storage capacity.