Strategic Use of Storage: The Impact of Carbon Policy, Resource Availability, and Technology Efficiency on a Renewable-Thermal Power System

30 Pages Posted: 21 Jun 2018

See all articles by Sébastien Debia

Sébastien Debia

HEC Montreal - Department of Decision Sciences

Pierre-Olivier Pineau

HEC Montreal - Department of Decision Sciences

Afzal Siddiqui

Stockholm University - Department of Computer and Systems Sciences; Aalto University - Department of Mathematics and Systems Analysis

Date Written: April 13, 2018

Abstract

Concerns about climate change have spurred governments to reduce carbon emissions by supporting adoption of renewable energy (RE) technologies. Due to the intermittent and location-specific nature of RE technologies, energy storage has become important because it could be used to smooth out temporal disparities in residual demand. Thus, carbon policy has made storage-enabled RE generation more critical to the power sector, and this enhanced position could be exploited by firms to exert market power. Using an equilibrium model, we examine the implications of policy interventions and technological change on the marginal value of energy storage in a power market with RE and thermal generation. In particular, we specify the market conditions under which RE producers with storage strategically shift deployment of their resource to the off-peak period and outline its implications for the marginal value of RE storage. Moreover, we find that even price-taking RE producers may actually increase off-peak RE production as storage efficiency increases. Consequently, the RE producer's profit decreases with storage efficiency, which conflicts with the social objective of improving storage efficiency. These private and social incentives can be better aligned via a carbon tax, however. Hence, our results may inform the regulatory process governing market design of a power sector with increasing capacities of RE generation and storage.

Keywords: energy storage, market power, carbon policy, renewable energy

JEL Classification: Q42, L94, C60

Suggested Citation

Debia, Sébastien and Pineau, Pierre-Olivier and Siddiqui, Afzal, Strategic Use of Storage: The Impact of Carbon Policy, Resource Availability, and Technology Efficiency on a Renewable-Thermal Power System (April 13, 2018). Available at SSRN: https://ssrn.com/abstract=3198117 or http://dx.doi.org/10.2139/ssrn.3198117

Sébastien Debia

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

Pierre-Olivier Pineau

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

Afzal Siddiqui (Contact Author)

Stockholm University - Department of Computer and Systems Sciences ( email )

Stockholm
Sweden
164 07 (Fax)

Aalto University - Department of Mathematics and Systems Analysis ( email )

P.O. Box 11100
Helsinki, 00076
Finland

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