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Welfare Impacts of Electricity Storage and the Implications of Ownership Structure

Ramteen Sioshansi

Year: 2010
Volume: Volume 31
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No2-7
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Abstract:
Increases in electricity price volatility have raised interest in electricity storage and its potential arbitrage value. Large utility-scale electricity storage can decrease the value of energy arbitrage by smoothing differences in prices on- and off-peak, however this price-smoothing effect can result in significant external welfare gains by reducing consumer energy costs and generator profits. As such, the incentives of merchant storage operators, consumers, and generators may not be properly aligned to ensure socially-optimal storage use. We examine storage use incentives for these different agent types and show that under most reasonable market structures a combination of merchant and consumer ownership of storage maximizes potential welfare gains from storage use.



The Value of Plug-In Hybrid Electric Vehicles as Grid Resources

Ramteen Sioshansi and Paul Denholm

Year: 2010
Volume: Volume 31
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol31-No3-1
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Abstract:
Plug-in hybrid electric vehicles (PHEVs) can become valuable resources for an electric power system by providing vehicle to grid (V2G) services, such as energy storage and ancillary services. We use a unit commitment model of the Texas power system to simulate system operations with different-sized PHEV fleets that do and do not provide V2G services, to estimate the value of those services. We demonstrate that a PHEV fleet can provide benefits to the system, mainly through the provision of ancillary services, reducing the need to reserve conventional generator capacity. Moreover, our analysis shows that PHEV owners are made better off by providing V2G services and we demonstrate that these benefits can reduce the time it takes to recover the higher upfront capital cost of a PHEV when compared to other vehicle types.



Increasing the Value of Wind with Energy Storage

Ramteen Sioshansi

Year: 2011
Volume: Volume 32
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No2-1
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Abstract:
One economic disincentive to investing in wind generation is that the average market value of wind energy can be lower than that of other generation technologies. This is driven by the exercise of market power by other generators and the fact that the ability of these generators to exercise market power is inversely related to real-time wind availability. We examine the use of energy storage to mitigate this price suppression by shifting wind generation from periods with low prices to periods with higher prices. We show that storage can significantly increase the value of wind generation but the currently high capital cost of storage technologies cannot be justified on the basis of this use. Moreover, we demonstrate that this use of storage can reduce consumer surplus, the profits of other non-wind generators, and social welfare. We also examine the sensitivity of these effects to a number of parameters including storage size, storage efficiency, ownership structure, and market competitiveness--showing that a more-competitive market can make storage significantly more valuable to a wind generator.



Do Centrally Committed Electricity Markets Provide Useful Price Signals?

Ramteen Sioshansi and Ashlin Tignor

Year: 2012
Volume: Volume 33
Number: Number 4
DOI: 10.5547/01956574.33.4.5
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Abstract:
Centrally committed markets rely on an independent system operator to determine the commitment and dispatch of generators. This is done by solving a unit commitment model, which is an NP-hard mixed integer program that is rarely (if ever) solved to complete optimality. We demonstrate, using a case study based on the ISO New England system, that near-optimal solutions that are very close to one another in terms of overall system cost can yield very different generator surpluses and prices. We further demonstrate that peaking generators are more prone to surplus differences between near-optimal solutions and that transmission buses that are most prone to binding transmission constraints experience the greatest price fluctuations. Based on these findings, we discuss the potential benefits of a decentralized market design in providing more robust price signals. Keywords: Unit commitment, Market design, Pricing http://dx.doi.org/10.5547/01956574.33.4.5



Merchant Storage Investment in a Restructured Electricity Industry

Afzal S. Siddiqui, Ramteen Sioshansi, and Antonio J. Conejo

Year: 2019
Volume: Volume 40
Number: Number 4
DOI: 10.5547/01956574.40.4.asid
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Abstract:
Restructuring and liberalisation of the electricity industry creates opportunities for investment in energy storage, which could be undertaken by a profit-maximising merchant storage operator. Because such a firm is concerned solely with maximising its own profit, the resulting storage-investment decision may be socially suboptimal (or detrimental). This paper develops a bi-level model of an imperfectly competitive electricity market. The modelling framework assumes electricity-generation and storage-operations decisions at the lower level and storage investment at the upper level. Our analytical results demonstrate that a relatively high (low) amount of market power in the generation sector leads to low (high) storage-capacity investment by the profit-maximising storage operator relative to a welfare maximiser. This can result in net social welfare losses with a profit-maximising storage operator compared to a no-storage case. Moreover, there are guaranteed to be net social welfare losses with a profit-maximising storage operator if the generation sector is sufficiently competitive. Using a charge on generation ramping between off- and on-peak periods, we induce the profit-maximising storage operator to invest in the same level of storage capacity as the welfare-maximising firm. Such a ramping charge can increase social welfare above the levels that are attained with a welfare-maximising storage operator.



Another Step Towards Equilibrium Offers in Unit Commitment Auctions with Nonconvex Costs: Multi-Firm Oligopolies

Joseph E. Duggan, Jr. and Ramteen Sioshansi

Year: 2019
Volume: Volume 40
Number: Number 6
DOI: 10.5547/01956574.40.6.jdug
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Abstract:
There are two uniform-price-auction formats - centrally and self-committed - that are used commonly in wholesale electricity markets. Both formats are operated by an independent third-party market operator, which solicits supply offers from generators and determines how much energy they produce to serve customer demand. In centrally committed markets, generators submit complex offers that convey all of their non-convex operating costs and constraints. Conversely, generators submit simple offers in self-committed markets that specify only the price at which they are willing to supply energy. Thus, generators must internalize their non-convex costs and other operating constraints in submitting offers in a self-committed market. Centrally committed markets include also a provision that each generator is made whole on the basis of its submitted offers. No such guarantees exist in self-committed markets. This paper builds on the work of Sioshansi and Nicholson (2011) and studies the energy-cost ranking and incentive properties of the two market designs in a multi-firm oligopoly setting. We derive Nash equilibria under both market designs. We find that equilibrium offer behavior across the two market designs is qualitatively similar to the duopoly model when demand is high. However, when demand is low, cost equivalence between the two market designs breaks down. This is because inframarginal generators are able to earn positive profits in certain states of low demand in self-committed markets, whereas all generators are constrained to earn zero profits in low-demand states in the centrally-committed market design.





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