Assessing the economic value and optimal structure of large-scale electricity storage

Large-scale electricity storage can enable arbitrage between periods when electricity is abundant, and cheap, and periods when it is scarce. In principle, this could enable greater use of baseload generation, and encourage investments in intermittent capacity such as wind and solar. If storage is to penetrate the system, the marginal value of storage capacity must be high enough to enable investments in storage. To have a significant impact on investments in intermittent technologies, it must be large enough to affect the prices on the system. This research develops a theoretical framework to evaluate the marginal values of the components of a storage system, and to characterize the impact of storage on the price patterns in the system. The theoretical approach is applied to an example system to illustrate the changes in marginal values as storage penetrates the system, and the impact on system prices.