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Deviations from commitments: Markov decision process formulations for the role of energy storage

Ece Cigdem Karakoyun, Harun Avci, Ayse Selin Kocaman and Emre Nadar

International Journal of Production Economics, 2023, vol. 255, issue C

Abstract: We study the energy commitment, generation, and storage problem for a wind power producer who can own and operate a battery for different purposes. We consider two main problem settings: In the first setting, the producer may choose to deviate from her commitments based on the latest available information, using the battery to support such deviations. In the second setting, the producer is required to fulfill her commitments, using the battery as a back-up source. We also consider the special cases of these settings with no battery. In these settings, the producer decides how much energy to commit to purchasing or selling, how much energy to generate in the wind power plant, and how much energy to charge into or discharge from the battery. We formulate the producer’s decision-making process as a Markov decision process (MDP) by taking into account uncertainties in the electricity price and wind speed in a market setting where the price can be negative. We analytically compare the total profits of the two main settings. We then conduct data-calibrated numerical experiments to examine the effects of system components, imbalance pricing parameters, negative prices, and wind availability on the system operations and profits. Using the battery to intentionally deviate from commitments rather than to minimize such deviations improves the total profit by 16.5%, while this change in the role of the battery increases the total imbalance by 16 times, on average, in our experiments.

Keywords: Renewable energy; Storage; Electricity markets; Imbalance pricing; Negative electricity prices; Markov decision processes (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1016/j.ijpe.2022.108711

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Handle: RePEc:eee:proeco:v:255:y:2023:i:c:s0925527322002936