Value and economic estimation model for grid-scale energy storage in monopoly power markets

Recent trend in increasing the penetration level of renewable energy challenges safety and stability of the power grid. Electrical energy storage (EES) has been deemed as one of the key elements needed to mitigate the fluctuant and intermittent nature of renewables, and is undergoing rapid development nowadays. However, there are still many questions regarding the benefits and drawbacks that EES technologies will present to society, as well as the economic feasibility of EES in monopoly power markets. Given this, this paper presents a grid-scale production cost model for monopoly power markets in which EES generates profits by offering both energy and ancillary services. The production costs of the power system with and without an EES power plant was compared in order to generate a value estimation. Results indicate that the value of EES is related to the unit fuel price and the start-up cost of thermal power units, the penetration level of wind power and size of the EES system. Based on these variables, a value-driven pricing mechanism for EES was put forward and compared with other policies. Economic viability analysis revealed that the pricing mechanism currently used in monopoly power markets are highly inaccurate in capturing the value generated by EES.