Economic Value Assessment and Optimal Sizing of an Energy Storage System in a Grid-Connected Wind Farm

Dong Gu Choi, Daiki Min and Jong-hyun Ryu
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Dong Gu Choi: Department of Industrial and Management Engineering, Pohang University of Science and Technology (POSTECH), 77 Cheongam-Ro, Nam-Gu, Pohang, Gyeongbuk 37673, Korea
Daiki Min: School of Business, Ewha Womans University, 52, Ewhayeodae-gil, Seodaemun-gu, Seoul 03760, Korea
Jong-hyun Ryu: College of Business Management, Hongik University, 2639, Sejong-ro, Jochiwon-eup, Sejong-si 30016, Korea

Energies, 2018, vol. 11, issue 3, 1-23

Abstract: This study identifies the optimal management policy of a given energy storage system (ESS) installed in a grid-connected wind farm in terms of maximizing the monetary benefits and provides guidelines for defining the economic value of the ESS under optimal management policy and selecting the optimal size of the ESS based on economic value. Considering stochastic models for wind power and electricity price, we develop a finite-horizon periodic-review Markov decision process (MDP) model to seek the optimal management policy. We also use a simple optimization model to find the optimal storage capacity and charging/discharging capacity of the ESS. By applying our analytic approach to a real-world grid-connected wind farm located in South Korea, we verify the usefulness of this study. Our numerical study shows that the economic value of the ESS is highly dependent on management policy, wind electricity variability, and electricity price variability. Thus, the optimal size of ESS should be carefully determined based on the locational characteristics and management policy even with limited investments. Furthermore, this study provides a meaningful policy implication regarding how much of a subsidy the government should provide for installing ESS in a wind farm.

Keywords: wind farm; energy storage system; economic value assessment; optimal sizing; dynamic programming; Markov decision process (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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