The comparative economic assessment of the impacts of energy storage and demand response resource participation in the day-ahead electricity markets
Electricity is the prototypical just-in-time product due to the limited means to economically store it on a large-scale basis. As such, electricity must be consumed as soon as it is produced. In areas of the U.S. grid with competitive electricity markets, independent system operators (ISOs) run day-ahead electricity markets (DAMs) to determine which resources will meet the demand and ensure adequate capacity is committed so that the supply-demand balance can be met around the clock. System operators have met the demand by controlling the output of the supply-side resources, namely generators, since there is a limited amount of gridscale energy storage (ES) in operation today and little participation from the demand-side in meeting the supply-demand balance. The reliance on supply-side resources to maintain the supply-demand balance results, at times, in high prices, marked price volatility, and even price spikes. These price issues, along with advances in storage and communication technology, have reinvigorated the drive of policymakers, system planners and operators, private investors and other electricity grid stakeholders to expand the utilization of ES and demand response (DR) resources to reliably and effectively meet the supply-demand balance. ES and DR resources provide the ISO with additional degrees of freedom in meeting the supply-demand balance by enabling electricity to be stored and shifted from peak load hours to lower load hours, which may decrease the operational costs and improve system reliability. We know of no work which has studied the economic impacts of integrated DR and ES resources in depth. Consequently, there is a limited understanding among electricity grid stakeholders of the economic impacts of deepening ES and DR resource penetrations on the DAMs. To develop operational and planning strategies which are effective and policies which incentivize appropriate penetrations of ES and DR resources, grid stakeholders need to understand these impacts. In this work, we provide a comparative economic assessment of the impacts of DR and ES resources participating in the DAMs. In order to perform the assessment, we construct a flexible simulation approach which represents the salient aspects of the DAMs and the current regulatory environment. The engine of our approach is the extended transmission-constrained market clearing problem (EMCP). In the EMCP framework, we explicitly account for ES and DR resources and the transmission-constrained network. Furthermore, we represent DR resources (DRRs) as a special case of ES resources (ESRs), which allows for the comparison of ES and DR resources on equal footing. Our approach also allows the assessment of the impacts of DRR recovery energy—an important, and often ignored, component of economic impacts of DRRs on the DAMs. This flexible approach provides stakeholders the means to develop a deeper understanding of the economic impacts of integrated ES and DR resources participating in the DAMs. We apply the simulation approach to perform the comparative economic assessment of the impacts of deepening capacity penetrations of ES and DR resources with their explicit participation in DAMs using data from the ISO-New England (ISO-NE) and Midwest ISO (MISO). Through our extensive studies, we have determined the average buyer locational marginal price (ABLMP) to be an effective metric for measuring the economic impacts of DR and ES resources on the DAMs. In our studies, we investigate the reductions in average buyer locational marginal price (ABLMP) which result from the participation of ES and DR resources with capacities penetrations in the 0% to 30% of system peak load range. We find the deployment of ESRs has a greater impact on reducing the ABLMP than DRRs at each penetration investigated, reducing the ABLMPs by as much as 9.2% compared to the base case system with no deployed DR or ES resources. DRRs, on the other hand, resulted in ABLMP reductions of at most 2.7% compared to the base case due to the additional regulatory constraints in place for DRRs. Furthermore, we find that DRRs cause increases in the ABLMP at relatively low penetrations when DRR energy recovery is taken into account—contrary to the results of other studies which have investigated the economic impacts of DRRs in the market environment. Additionally, we find that systems which experience a greater difference between the average peak and off-peak locational marginal prices (LMPs) and/or a higher ratio of average peak to off-peak loads accommodate deeper penetrations of ES and DR resources before the ABLMP reductions are saturated with respect to ES and/or DR resources—the sensitivity of the ABLMP reductions compared to the base case to an additional MW of ES and DR resource capacity becomes zero or negative. We find that the economic impacts of DRRs on the ABLMPs saturate at 2%–6% penetration while those of ESRs saturate at 9%–20% penetration of the system peak load. The results of such studies provide useful information for planning, the development of operational procedures, the formulation of effective policy and other electricity grid stakeholder decision making processes. Moreover, the flexible market simulation approach developed in this work provides electricity grid stakeholders a means to perform a number of “what if” studies to analyze the economic impacts of the various aspects of ES and DR resources on the DAMs.
demand response, energy storage, electricity markets, market simulation
University of Illinois - Urbana-Champaign
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University of Illinois at Urbana-Champaign