Energy Systems

, Volume 8, Issue 1, pp 169–197 | Cite as

Price and capacity competition in balancing markets with energy storage

  • Joshua A. TaylorEmail author
  • Johanna L. Mathieu
  • Duncan S. Callaway
  • Kameshwar Poolla
Original Paper


Energy storage can absorb variability from the rising number of wind and solar power producers. Storage is different from the conventional generators that have traditionally balanced supply and demand on fast time scales due to its hard energy capacity constraints, dynamic coupling, and low marginal costs. These differences are leading system operators to propose new mechanisms for enabling storage to participate in reserve and real-time energy markets. The persistence of market power and gaming in electricity markets suggests that these changes will expose new vulnerabilities. We develop a new model of strategic behavior among storages in energy balancing markets. Our model is a two-stage game that generalizes a classic model of capacity followed by Bertrand–Edgeworth price competition by explicitly modeling storage dynamics and uncertainty in the pricing stage. By applying the model to balancing markets with storage, we are able to compare capacity and energy-based pricing schemes and to analyze the dynamic effects of the market horizon and energy losses due to leakage. Our first key finding is that capacity pricing leads to higher prices and higher capacity commitments, and that energy pricing leads to lower, randomized prices and lower capacity commitments. Second, we find that a longer market horizon and higher physical efficiencies lead to lower prices by inducing the storage to compete to have their states of charge cycled more frequently.


Energy storage Game theory Electric power systems Regulation Renewable energy 


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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  • Joshua A. Taylor
    • 1
    Email author
  • Johanna L. Mathieu
    • 2
  • Duncan S. Callaway
    • 3
  • Kameshwar Poolla
    • 4
  1. 1.Electrical and Computer EngineeringUniversity of TorontoTorontoCanada
  2. 2.Electrical Engineering and Computer ScienceUniversity of MichiganAnn ArborUSA
  3. 3.Energy and Resources GroupUniversity of CaliforniaBerkeleyUSA
  4. 4.Mechanical EngineeringUniversity of CaliforniaBerkeleyUSA

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