Energy Storage Participation in Wholesale Markets: The Impact of State-of-Energy Management

Wholesale electricity markets are undergoing reforms to allow greater participation of energy storage. These reforms raise questions regarding the roles of market operators in energy-storage management and the design of market-participation models and offer parameters for energy storage. This paper examines the market implications of energy-storage participation models and state-of-energy (SOE) management. To this end, we develop a bi-level stochastic optimization model, wherein the upper level represents a profit-maximizing energy-storage firm offering into a wholesale market. Lower-level problems represent market clearing under different uncertain operating conditions. Using complementarity theory and binary expansion, this model is recast as a single-level mixed-integer linear optimization problem, which can be solved using off-the-shelf software packages. We apply the model to an illustrative example and a comprehensive case study. We demonstrate that with uncertainty, self scheduling energy storage is suboptimal for the energy-storage firm. Relying on only the energy-storage firm to manage SOE can yield strategic behavior, whereby infeasible offers are submitted to affect dispatch and market prices. These findings can guide ongoing market-design reforms.