This paper proposes a market mechanism for multi-interval electricity markets with generator and storage participants. Drawing ideas from supply function bidding, we introduce a novel bid structure for storage participation that allows storage units to communicate their cost to the market using energy-cycling functions that map prices to cycle depths. The resulting market-clearing process--implemented via convex programming--yields corresponding schedules and payments based on traditional energy prices for power supply and per-cycle prices for storage utilization. We illustrate the benefits of our solution by comparing the competitive equilibrium of the resulting mechanism to that of an alternative solution that uses prosumer-based bids. Our solution shows several advantages over the prosumer-based approach. It does not require a priori price estimation. It also incentivizes participants to reveal their truthful cost, thus leading to an efficient, competitive equilibrium. Numerical experiments using New York Independent System Operator (NYISO) data validate our findings.
Energy storage is a key enabler towards a low-emission electricity system, but requires appropriate dispatch models to be economically coordinated with other generation resources in bulk power systems. This paper analyzes how different dispatch models and bidding strategies would affect the utilization of storage with various durations in deregulated power systems. We use a dynamic programming model to calculate the operation opportunity value of storage from price predictions, and use the opportunity value result as a base for designing market bids. We compare two market bidding and dispatch …
Energy storage is expected to play an increasingly important role in mitigating variations that come along with the growing penetration of renewable energy. In this paper, we study the optimal bidding of an energy storage unit in a semi-centralized market. The energy storage unit offers its available storage capacity and maximum charging/discharging rate to the operator; then the operator clears the real-time market by minimizing the total cost. The energy storage unit is paid/charged at locational marginal price (LMP). The problem casts down to a bilevel optimization problem with a mixed-inte…
There is growing interest in the use of grid-level storage to smooth variations in supply that are likely to arise with increased use of wind and solar energy. Energy arbitrage, the process of buying, storing, and selling electricity to exploit variations in electricity spot prices, is becoming an important way of paying for expensive investments into grid-level storage. Independent system operators such as the NYISO (New York Independent System Operator) require that battery storage operators place bids into an hour-ahead market (although settlements may occur in increments as small as 5 minu…
This paper investigates the efficiency loss in social cost caused by strategic bidding behavior of individual participants in a supply-demand balancing market, and proposes a mechanism to fully recover equilibrium social optimum via subsidization and taxation. We characterize the competition among supply-side firms to meet given inelastic demand, with linear supply function bidding and the proposed efficiency recovery mechanism. We show that the Nash equilibrium of such a game exists under mild conditions, and more importantly, it achieves the underlying efficient supply dispatch and the marke…
A standard result from auction theory is that bidding truthfully in a second price auction is a weakly dominant strategy. The result, however, does not apply in the presence of Cost Per Action (CPA) constraints. Such constraints exist, for instance, in digital advertising, as some buyer may try to maximize the total number of clicks while keeping the empirical Cost Per Click (CPC) below a threshold. More generally the CPA constraint implies that the buyer has a maximal average cost per unit of value in mind. We discuss how such constraints change some traditional results from auction theory. F…
One of the recognized principal issues brought along by the steadfast migration towards power electronic interfaced energy sources is the loss of rotational inertia. In conventional power systems, the inertia of the synchronous machines plays a crucial role in safeguarding against any drastic variations in frequency by acting as a buffer in the event of large and sudden power generation-demand imbalances. In future power electronic-based power systems, the same role can be played by strategically located virtual inertia devices. However, the question looms large as to how the system operators …
It is anticipated that large-scale energy storage facility (ESF) will become an essential part of the future energy markets to increase the penetration of renewables. In this paper, a new optimization algorithm is developed to participate in large-scale merchant ESF to deal with renewables fluctuations. The ESF is an investor-owned and independently-operated, seeking to maximize its total profit while hedging the system against net-load variation. To do so, an exact computationally efficient bi-level mixed-integer linear programming (MILP) is envisaged. The ESF operator tries to maximize its o…
We evaluate the applicability of the generic Vickrey-Clarke-Groves (VCG) mechanism as an antimonopoly measure against a profit-maximizing producer with market power operating a portfolio of generating units at the centralized two-settlement energy market. The producer may indicate in its bid not only the altered cost function but also the distorted values of the technical parameters of its generating units, which enter the system-wide constraints of the centralized dispatch optimization problem. To ensure the applicability of the VCG method in this setting, we identify an additional assumption…
