Analysing the Potential Economic Value of Energy Storage

IEB Working Paper N. 2016/02

28 Pages Posted: 9 Mar 2016

See all articles by Lisa Flatley

Lisa Flatley

University of Warwick

Monica Giulietti

Loughborough University

Luigi Grossi

University of Verona - Department of Economics

Elisa Trujillo-Baute

University of Warwick

Michael Waterson

University of Warwick - Department of Economics

Date Written: February 23, 2016

Abstract

This paper examines the likely market for electrical energy storage from a market viewpoint, taking market prices as given and determining the extent to which a strategy of arbitrage across the day, buying at the lowest price times at night and selling at the highest times during the early evening, generates profits in the British context. The paper sets out the potential problems as the market moves to absorb increasing amounts of wind, then characterises the nature of prices, which reveals the importance of a strategy in which power is absorbed into store for a relatively few hours of the day and discharged over a relatively few hours. The paper models the ongoing costs of operation and compares them with revenues, but does not consider construction costs. It argues that additional incentives may need to be put into place in order to render storage over relatively longer periods more attractive.

Keywords: Energy storage, arbitrage, electricity markets, market clearing

JEL Classification: L94, L98, H54, D24, Q41, Q47

Suggested Citation

Flatley, Lisa and Giulietti, Monica and Grossi, Luigi and Trujillo-Baute, Elisa and Waterson, Michael, Analysing the Potential Economic Value of Energy Storage (February 23, 2016). IEB Working Paper N. 2016/02, Available at SSRN: https://ssrn.com/abstract=2744679 or http://dx.doi.org/10.2139/ssrn.2744679

Lisa Flatley

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Monica Giulietti

Loughborough University ( email )

Ashby Road
Nottingham NG1 4BU
Great Britain

Luigi Grossi

University of Verona - Department of Economics ( email )

Via dell'Artigliere, 8
37129 Verona
Italy

Elisa Trujillo-Baute (Contact Author)

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Michael Waterson

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

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