Publication Type

Conference Paper

Publication Date

6-2014

Abstract

Electricity cannot yet be stored on a large scale, but technological advances leading to cheaper and more efficient industrial batteries make grid-level storage of electricity surpluses a natural choice. Because electricity prices can be negative, it is unclear how the presence of negative prices might affect the storage policy structure known to be optimal when prices are only positive, or even how important it is to consider negative prices when managing an industrial battery. For the case of fast storage (non-binding flow capacity limits), we show analytically that negative prices can substantially alter the optimal policy structure, e.g., it may be optimal to empty an almost empty storage facility and optimal to fill up an almost full one. For the case of slow storage, more typical in grid-level electricity storage applications, we numerically show that ignoring negative prices could result in a considerable loss of value when negative prices occur more than 5% of the time. The presence of negative prices raises another possibility: rather than storing surpluses, a merchant might buy negatively priced electricity surpluses and dispose of them, e.g., using load banks. We quantify that when negative prices occur 10% of the time, the value of this disposal strategy is substantial—around 118$/kW-year—but less than that of the storage strategy, e.g., around 391$/kW-year using a typical battery. However, devices for disposal are much cheaper than those for storage. Our results thus have ramifications for merchants in trading electricity surpluses as well as policy makers in assessing social welfare.

Discipline

Business

City or Country

Seattle, U.S.

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