Electricity Trading and Negative Prices: Storage vs. Disposal

Abstract

Electricity cannot yet be stored on a large scale, but technological advances leading to cheaper and more efficient industrial batteries make grid-level storage of electricity surpluses a natural choice. Because electricity prices can be negative, it is unclear how the presence of negative prices might affect the storage policy structure known to be optimal when prices are only nonnegative, or even how important it is to consider negative prices when managing an industrial battery. For fast storage (a storage facility that can both be fully emptied and filled up in one decision period), we show analytically that negative prices can substantially alter the optimal storage policy structure, e.g., all else being equal, it can be optimal to empty an almost empty storage facility and fill up an almost full one. For more typical slow grid-level electricity storage, we numerically establish that ignoring negative prices could result in a considerable loss of value when negative prices occur more than 5% of the time. Negative prices raise another possibility: rather than storing surpluses, a merchant might buy negatively priced electricity surpluses and dispose of them, e.g., using load banks. We find that the value of such a disposal strategy is substantial, e.g., about $118 per kilowatt-year when negative prices occur 10% of the time, but smaller than that of the storage strategy, e.g., about $391 per kilowatt-year using a typical battery. However, devices for disposal are much cheaper than those for storage. Our results thus have ramifications for merchants as well as policy makers. This paper was accepted by Serguei Netessine, operations management.

Electric Power Industry: Operational and Public Policy Challenges and Opportunities

“…, Zhou et al. ). This type of problem has similarities with classical inventory management problems, yet with distinct challenges primarily due to conversion losses in charging and discharging, dissipation losses, and ramp constraints.…”

“…Jiang and Powell (2015a) develop an approximate dynamic programming algorithm that can be applied to study the joint operation of intermittent generation and electricity storage. Zhou et al (2015) study a merchant using storage to manage electricity surpluses in an electricity wholesale market and show how negative prices affect the optimal storage policy structure. Paine et al (2014) develop a dynamic programming model of pumped hydroelectric storage operation under different market rules and show how market rules affect operational strategies as well as the profitability of the pumped hydro facility (We provide a more detailed review on hydropower operations in section 3.7).…”

“…On the policy side, there are regulatory changes that must be adapted to enable widespread integration of energy storage . Testing the effect of Graves et al (1999), Walawalkar et al (2007), Figueiredo et al (2006), and policy for the storage Brown et al (2008), Harsha and Dahleh (2015), L € ohndorf et al (2013), van de Ven et al (2013), Zhou et al (2015), Granado et al (2007), Xi et al (2014), Paine et al (2014), Jiang and Powell (2015a,b), and Moarefdoost and Snyder (2015) Optimal storage capacity Harsha and Dahleh (2015), Brown et al (2008), Brunetta and Tina (2007), Ru et al (2013), Babrowski et al (2015), Jiang et al (2016), Billionnet et al (2016), and Qi et al (2015) Effects of integrating electricity storage on social welfare Sioshansi (2010Sioshansi ( , 2011b, Schill and Kempert (2011), and Sioshansi (2014) Effects of integrating electricity storage on emissions Sioshansi (2011a), Greenblatt et al (2007), and Denholm et al (2005) Value of storage based on multiple types of service that the storage can provide Walawalkar et al (2007), Drury et al (2011), andXi et al (2014) Open research questions…”

Impact of Electricity Pricing Policies on Renewable Energy Investments and Carbon Emissions

“…Wu and Kapuscinski (2013) find that curtailing renewable energy output can be helpful in dealing with intermittency. Zhou et al (2016) study electricity storage with possibly negative electricity prices and derive the optimal disposal strategy. Zhou et al (2014) propose an easily implementable policy for operating wind farms in the presence of storage facilities.…”

The Impact of Government Subsidy on Renewable Microgrid Investment Considering Double Externalities

“…Proposition 4 can partially give insights into the common phenomenon of negative electricity prices in some free electric markets. Negative electricity prices have been found in some electricity spot markets, such as the United States, the European Union, and Australia, and it will likely appear more frequently with the increasing installed capacity of renewable energy [32]. Microgrids face the trade-off between the negative price and government subsidy under the situation that the electricity demand is lower than the power supply.…”