Abstract
The growing penetration of variable renewable energy generation has imposed significant challenges on matching demand with supply in the real time. Energy storage is considered as an environmentally friendlily candidate that absorbs the variations of renewable generation so as to provide flexibility for system operation. It has been noted that large, grid-level energy storage systems could potentially influence nodal electricity prices, especially when transmission constraints reduce local competition. As a result, it is becoming increasingly important for the regulators to design proper market mechanisms for price-making energy storage in electricity markets. This thesis has addressed the optimal participation of price-making energy storage in wholesale electricity markets from two different perspectives, e.g. profit maximization perspective for merchant storage owners and social welfare maximization perspective for the social planner. To that end, this thesis focuses on the four topics concerning the integration of large scale grid-level energy storage into the electricity markets: (i) market mechanisms for energy storage operation in the electricity markets with the storage capacity fixed (ii) market mechanisms for joint energy storage investment and operation, (iii) storage investment competition between a single merchant storage owner and the social planner, (iv) storage operation competition among multiple merchant storage owners. Regarding the first topic, we conduct a comparative analysis on three natural market mechanisms for energy storage operation: i) the centralized mechanism according to which all batteries are centrally operated to minimize the social cost, ii) the semicentralized mechanism under which the batteries are centrally operated subject to the constraints specified by a single storage owner (on the maximum amount of withdrawn and charged energy in each period), and iii) the deregulated mechanism according to which the storage owner can freely operate batteries so as to maximize her profit. Furthermore, we analyze two market mechanisms for joint energy storage investment and operation: i) socially optimal storage investment with centralized operation, ii) profitmaximizing storage investment with deregulated operation. We explore the pros and cons of different market mechanisms and propose incentive policies for the regulators to better utilize energy storage units. For the third topic, we investigate the interaction between the regulated and merchant storage investment made by a social planner and a merchant, through a bi-level Stackelberg competition model. Finally, we study the market effect of storage operation competition among multiple merchant storage owners through a Cournot game model.