Analysis of the Role of Energy Storage in Power Markets with Strategic Players
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- Institutt for elkraftteknikk 
Energy storage has gained increasing popularity in both industry and research during the last decade, due to its valuable flexibility service for power systems. Some claim that energy storage may have a central role in the European power system towards a cost-efficient de-carbonization. In order to gain useful insight regarding the incorporation of energy storage technologies in large-scale market simulators and investment models, we present a thorough evaluation of its material impact on market prices and welfare. A storage facility is modelled under perfect competition and imperfect competition, in order to study the effects of potential strategic behavior at the supply side of an energy only market. The objective of this Master s thesis is to investigate the role of energy storage in power markets with strategic players. The power market and the players` strategies are modeled by applying complementarity theory. The models are formulated as Mixed Complementarity Problem (MCP) and Mathematical Program with Equilibrium Constraints (MPEC), which is developed to mimic the strategic behavior of both conventional power generators and energy storages. Several simulations have been conducted in order to analyze the influence of strategic game of the energy storage, where the storage has either been operated as price setter or price taker. A case study consisting of one generator and one energy storage unit is carried out in order to evaluate the effect of strategic behavior. This study reveals that the intra-day price variations get smoother as more storage capacity is added to the system. If the operator behaves strategic, it will exercise market power in order to increase its profits, but it is shown that the magnitude of market power is limited by the level of production capacity. At 93 % of the optimal production capacity, the energy storage facility can have a significant impact on market prices. During morning and evening peak demand, the market price increases from 40 EUR/MWh to 69 EUR/MWh due to strategic behavior in terms of withholding production capacity. The results point out the effects of strategic behavior of an energy storage in an imperfect power market. The proposed study has led to the conclusion that the qualitative effect of the ownership of the storage unit is clearly present. At the same time, the quantitative results emerge as realistic, but these are still heavily dependent on the underlying assumptions and input parameters.