Optimal participation of price-maker battery energy storage systems inenergy and ancillary services markets considering degradation cost

This paper proposes a bi-level optimization framework to investigate the optimal market operation strategiesof price-maker battery energy storage systems (BESSs) in real-time energy, spinning reserve, and pay asperformance regulation markets, with a special focus on understanding BESS's excessive regulation marketparticipation observed by several system operators and the impact of battery degradation cost on BESSmarket activities. An accurate battery degradation cost function is integrated into the BESS's strategic biddingmodel. An automatic generation control (AGC) signal dispatch model is proposed to deploy AGC signals inthe bi-level framework. This enables thorough studies for BESS's operating characteristics in the frequencyregulation market, when both battery degradation and detailed AGC signal following activities are considered.Case studies on a synthetic system with real-world data are performed to study interactions between BESSprofit maximization and wholesale market operations, considering system annual load and ancillary servicerequirements variations. The impacts of BESS capacity and replacement cost on its revenue from energy andancillary services markets are also investigated.