Locational Energy Storage Bid Bounds for Facilitating Social Welfare Convergence

TL;DR

This paper introduces a new method for generating bid bounds for energy storage in electricity markets, aiming to reduce costs and prevent market power abuse by incorporating uncertainty and risk preferences.

Contribution

It develops a tractable chance-constrained formulation for bid bounds that adapt to system uncertainty and risk, improving social welfare and storage profitability.

Findings

Bid bounds effectively cap storage bids across all uncertainty scenarios.

Simulation shows bid bounds reduce system costs by 0.17% with increased storage profit.

Proposed bounds outperform existing deterministic bid bounds in tests.

Abstract

This paper proposes a novel method to generate bid bounds that can serve as offer caps for energy storage in electricity markets to help reduce system costs and regulate potential market power exercises. We derive the bid bounds based on a tractable multi-period economic dispatch chance-constrained formulation that systematically incorporates the uncertainty and risk preference of the system operator. The key analytical results verify that the bounds effectively cap storage bids across all uncertainty scenarios with a guaranteed confidence level. We show that bid bounds decrease as the state of charge increases but rise with greater netload uncertainty and risk preference. We test the effectiveness of the proposed pricing mechanism based on the 8-bus ISO-NE test system, including agent-based storage bidding models. Simulation results demonstrate that the proposed bid bounds effectively align storage bids with the social welfare objective and outperform existing deterministic bid bounds. Under 30% renewable capacity and 20% storage capacity, the bid bounds contribute to an average reduction of 0.17% in system cost, while increasing storage profit by an average of 10.16% across various system uncertainty scenarios and bidding strategies. These benefits scale up with increased storage economic withholding and storage capacity.