Storing Power: Market Structure Matters

60 Pages Posted: 2 Dec 2020

See all articles by David Andrés-Cerezo

David Andrés-Cerezo

affiliation not provided to SSRN

Natalia Fabra

Universidad Carlos III de Madrid - Departmento de Economia

Date Written: November 2020

Abstract

We assess how firms' incentives to operate and invest in energy storage depend on the market structure. For this purpose, we characterize equilibrium market outcomes allowing for market power in storage and/or production, as well as for vertical integration between storage and production. Market power reduces overall efficiency through two channels: it induces an inefficient use of the storage facilities, and it distorts investment incentives. The worst outcome for consumers and total welfare occurs under vertical integration. We illustrate our theoretical results by simulating the Spanish wholesale electricity market for different levels of storage capacity. The results are key to understanding how to regulate energy storage, an issue which is critical for the deployment of renewables.

JEL Classification: L22, L94

Suggested Citation

Andrés-Cerezo, David and Fabra, Natalia, Storing Power: Market Structure Matters (November 2020). CEPR Discussion Paper No. DP15444, Available at SSRN: https://ssrn.com/abstract=3737577

David Andrés-Cerezo (Contact Author)

affiliation not provided to SSRN

No Address Available

Natalia Fabra

Universidad Carlos III de Madrid - Departmento de Economia ( email )

E-28903 Getafe (Madrid)
Spain
+34-91 6249594 (Phone)
+34-91 6249329 (Fax)

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