On the value of storage at consumer locations

We study the economic value of energy storage operated by a consumer who faces fluctuating electricity prices and seeks to reduce its energy costs. The value of storage is defined as the consumer´s net benefit obtained by optimally operating the storage. We formulate the operation problem as a dynamic program. For a general setting with random electricity prices and stochastic demand, we show that by solving a sequence of (deterministic) convex optimization problems one can obtain an optimal operation policy as well as the value of storage. For an important special case where the consumer is faced with deterministic time-variant prices and (deterministic) inelastic demand, we propose a simple greedy algorithm that simultaneously computes the optimal operation policy and the economic value of a finite-capacity electric storage. We employ the proposed algorithm to numerically explore the value of storage under different pricing mechanisms.