Estimating the value of electricity storage in an energy-only wholesale market

Price volatility and increasing renewable energy generation have raised interest in the potential opportunities for storage technologies in energy-only electricity markets. In this paper we explore the value of a price-taking storage device in such a market, the National Electricity Market (NEM) in Australia. Our analysis suggests that under optimal operation, there is little value in having more than six hours of storage in this market. However, an inability to perfectly forecast wholesale prices, particularly extreme price spikes, may warrant some additional storage. We found that storage devices effectively provide a similar service to peak generators and are similarly dependent on and exposed to extreme price events, with revenue for a merchant generator highly skewed to a few days of the year. As a consequence of this finding, and in contrast to previous studies, the value of storage was found to be relatively insensitive to the round trip efficiency. We also found that the variability of revenue and exposure to extreme prices could be reduced using common hedging strategies, such as those currently used by peak generators. We present a case study that demonstrates storage technologies using such strategies may have a competitive advantage over other peaking generators in the NEM, due to the ability to earn revenue outside of extreme peak events. Similar to traditional peak generators, a main driver for storage options in an energy-only electricity market is extreme prices, which in turn is dependent on capacity requirements. However storage technologies can receive additional revenue streams, which may be improved by increased integration of renewable energy. (C) 2015 Elsevier Ltd. All rights reserved.