Why market rules matter: Optimizing pumped hydroelectric storage when compensation rules differ

Nathan Paine, Frances R. Homans, Melisa Pollak, Jeffrey M. Bielicki and Elizabeth J. Wilson

Energy Economics, 2014, vol. 46, issue C, 10-19

Abstract: Policies, markets, and technologies interact to create the modern electrical system. Integrating large amounts of electricity generated by variable renewable resources, such as from wind and sunlight, into electricity systems may require energy storage technologies to synchronize electricity production with electricity demand. Electricity markets compensate the performance of these energy storage technologies for the services they provide, and these markets are often operated by regional independent system operators (ISOs) that specify the market rules for this compensation. To examine how different ISO rules can affect the operation and profitability an energy storage technology, we develop a dynamic programming model of pumped hydroelectric storage (PHES) facility operation under the market rules from the Midcontinent ISO and ISO-New England. We present how differences in rules between these ISOs produced different operational strategies and profits, and how important they are for PHES profitability.

Keywords: Energy storage; Electricity markets; Energy market rules; Reliability services; Pumped hydro; Independent system operator (search for similar items in EconPapers)
JEL-codes: Q28 Q40 Q41 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:46:y:2014:i:c:p:10-19

DOI: 10.1016/j.eneco.2014.08.017

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