WELFARE EFFECT OF MARKET POWER IN STORAGE Olayinka Williams Richard Green Presented at the 40 th IAEE International conference
Energy Storage Energy storage devices can provide much needed flexibility Economic benefits of storage Delay transmission and distribution upgrades, Balancing services Congestion relief Reduce the cost of electricity generation Integration of renewables Storage usage Maximize social welfare (socially optimal operation) Maximize Profits (strategic operation) 4
Energy Storage Strategic operation of Storage Price spread manipulation Welfare transfers/losses Interaction with strategic generators Generator market power mitigation Collusion 5
Objectives What welfare effects will strategic operation of energy storage devices have in the presence of competitive generators? What welfare effects will energy storage have in the presence of strategic generators? 6
General Approach Simulation of non-linear program GAMS 24.7 The use of sample days Obtained by clustering (Green et al, 2014) Merit-order stack Staffell and Green (2016) Welfare maximization with flexible prices 7
The Merit Order Stack /MWh Marginal Cost of Generation P3 P2 P1 GW 8
Competitive Generator Dispatch /MWh P t MC g,t Capacity g output g,t 0 Marginal Cost of Generation P t MC g,t output g,t 0 Generator capacity GW 9
Strategic Generator Dispatch /MWh MR t MC g,t Capacity g output g,t 0 Price needed to give MR Marginal Cost of Generation MR t MC g,t output g,t 0 Generator capacity GW 10
Data Load Data National Grid Renewable load factors Weather data from NASA s MERRA database Virtual wind farm (Pfenninger and Staffell (2016)) Generator Costs Green and Staffell(2014) 11
Competitive Generator Dispatch /MWh 54 53 52 51 50 49 48 47 No Storage 5GW competitive 5GW Market power 10GW competitive 10GW Market power 12
Competitive Generator Dispatch /MWh 54 53 52 51 50 49 48 47 No Storage 5GW competitive 5GW Market power 10GW competitive 10GW Market power 13
Competitive Generator Dispatch /MWh 54 53 52 51 50 49 48 47 No Storage 5GW competitive 5GW Market power 10GW competitive 10GW Market power 14
Competitive Generator Dispatch /MWh 54 53 52 51 50 49 48 47 No Storage 5GW competitive 5GW Market power 10GW competitive 10GW Market power 15
Competitive Generator Dispatch /MWh 54 53 52 52.93 52.92 52.91 52.90 52.89 52.88 52.87 51 50 49 48 47 No Storage 5GW competitive 5GW Market power 10GW competitive 10GW Market power 16
5 GW Storage charging and discharging, Competitive Generators 4 3 2 1 0-1 -2-3 -4 5 GW comp 17
5 GW Storage charging and discharging, Competitive Generators 4 3 2 1 0-1 -1.47-2 -3-1.49-1.51-1.53-4 5 GW comp 5GW MP 18
5 GW Storage charging and discharging, Competitive Generators 4 3 2 1 0-1 -2-3 -4 5 GW comp 5GW MP 10 GW Comp 19
5 GW Storage charging and discharging, Competitive Generators 4 3 2 1 0-1 -2-3 -4 5 GW comp 5GW MP 10 GW Comp 10GW MP 20
Strategic Generator Dispatch /MWh 500 480 460 440 420 400 380 360 340 No Storage 5GW competitive 5GW Market power 10GWcompetitive 10GW Market power 21
Strategic Generator Dispatch /MWh 500 480 460 440 420 400 380 360 340 No Storage 5GW competitive 5GW Market power 10GWcompetitive 10GW Market power 22
Strategic Generator Dispatch /MWh 500 480 460 440 420 400 380 360 340 No Storage 5GW competitive 5GW Market power 10GWcompetitive 10GW Market power 23
Strategic Generator Dispatch /MWh 500 480 460 440 420 400 380 360 340 No Storage 5GW competitive 5GW Market power 10GWcompetitive 10GW Market power 24
Strategic Generator Dispatch /MWh 500 480 460 440 420 400 380 360 340 No Storage 5GW competitive 5GW Market power 10GWcompetitive 10GW Market power 25
Storage charging and discharging, strategic generators 4 GW 3 2 1 0-1 -2-3 -4 5GW competitive 26
Storage charging and discharging, strategic generators 4 GW 3 2 1 0-1 -2-3 -4 5GW competitive 5Gw Market power 27
Storage charging and discharging, strategic generators 4 GW 3 2 1 0-1 -2-3 -4 5GW competitive 5Gw Market power 10Gwcompetitive 28
Storage charging and discharging, strategic generators 4 GW 3 2 1 0-1 -2-3 -4 5GW competitive 5Gw Market power 10Gwcompetitive 10 Market power 29
Welfare Effects (Competitive Generators) Strategic behaviour relative to competitive behaviour from storage, with socially optimal behaviour from generators in both cases Storage Welfare (Welfare/Turnover) Consumer Surplus ( /millions) Generator profit ( /millions) Storage Profit ( /millions) Energy Discharged (GWh) 5GW, 20GWh -0.000007-31 27 5-29 10GW, 40GWh 5GW, 40GWh -0.000013-56 41 15-58 -0.000013-55 46 10-51 30
Welfare Effects (Strategic Generators) Strategic behaviour relative to competitive behaviour from storage, with strategic behaviour from generators in both cases Storage Welfare (Welfare/Turnover) Consumer Surplus ( /millions) Generator profit ( /millions) Storage Profit ( /millions) Energy Discharged (GWh) 5GW, 20GWh -0.00020-217 114 81-177 10GW, 40GWh 5GW, 40GWh -0.00030-429 240 154-1433 - 0.00025-303 196 78-953 31
Concluding remarks Strategic operation has little effect on welfare/ turnover ratio. Higher power rating will amplify losses from strategic storage operation. Strategic storage operator will try to widen the gap between peak and off peak prices. There are more welfare effects when generators are strategically dispatched. 32
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