Energy Storage Arbitrage Under Price Uncertainty: Market Risks and Opportunities

TL;DR

This paper examines how energy storage arbitrage profits are affected by market price uncertainties, comparing different optimization methods and uncertainty models to guide risk-aware decision-making.

Contribution

It introduces a comprehensive analysis of robust and chance-constrained optimization approaches for energy storage arbitrage under various uncertainty representations.

Findings

Robust strategies outperform in risk management during high volatility.

Efficient frontiers effectively illustrate risk-profit tradeoffs.

Uncertainty impacts arbitrage profitability and strategy selection.

Abstract

We investigate the profitability and risk of energy storage arbitrage in electricity markets under price uncertainty, exploring both robust and chance-constrained optimization approaches. We analyze various uncertainty representations, including polyhedral, ellipsoidal uncertainty sets and probabilistic approximations, to model price fluctuations and construct efficient frontiers that highlight the tradeoff between risk and profit. Using historical electricity price data, we quantify the impact of uncertainty on arbitrage strategies and compare their performance under distinct market conditions. The results reveal that arbitrage strategies under uncertainties can effectively secure expected profits, and robust strategies perform better in risk management across varying levels of conservativeness, especially under highly volatile market conditions. This work provides insights into storage arbitrage strategy selection for market participants with differing risk preferences, emphasizing the adaptability of efficient frontiers to the electricity market.