Energy Storage in Deregulated Market Structures

Wind energy is able to provide electricity with a minimal environmental footprint and is therefore anticipated to play a much larger role in future electricity generation. Although wind is able to provide electricity with limited environmental externalities, it produces the most electricity at night, when there is little demand, and produces the least electricity during the day, when demand is highest. One approach to address this countercyclical production is the implementation of energy storage. The ability to store electricity enables an operator to match electricity production to demand. The focus of this project is to understand the revenue generating capabilities of energy storage in deregulated market structures. A model was developed to analyze the possible revenue generation of utility scale energy storage. The two main categories of energy storage, short-term and long-term applications, as well as two deregulated markets, ERCOT and CAISO, were evaluated. The objective of the analysis was to determine the energy storage application and market structure generated the most value. The model integrated the price of electricity and ancillary services with wind production data to determine the revenue generation of each application and each market. The results indicate that annual revenue generation between the different energy storage applications and the different markets is very similar. Although the storage applications provided similar revenues, the rate of return for each application was very different. The short-term application offered much higher rates of returns due to significantly lower upfront capital costs. The short-term application rate of return consistently exceeded the hurdle rate while the long-term application did not. Therefore, short-term energy storage is the only recommended investment. Additionally, due to the operation parameters of the model set to maximize revenue, the production curve did not change to match demand.