Impact of storage competition on energy markets

Abstract We study how storage, operating as a price maker within a market environment, may be optimally operated over an extended period of time. The optimality criterion may be the maximisation of the profit of the storage itself, where this profit results from the exploitation of the differences in market clearing prices at different times. Alternatively it may be the minimisation of the cost of generation, or the maximisation of consumer surplus or social welfare. In all cases there is calculated for each successive time-step the cost function measuring the total impact of whatever action is taken by the storage. The succession of such cost functions provides the information for the storage to determine how to behave over time, forming the basis of the appropriate optimisation problem. We study particularly competition between multiple stores, where the objective of each store is to maximise its own income given the activities of the remainder. We show that, at the Cournot Nash equilibrium, multiple stores which between them have market impact collectively erode their own abilities to make profits: essentially each store attempts to increase its own profit over time by overcompeting at the expense of the remainder. We quantify this for linear price functions. We give examples throughout based on electricity storage and Great Britain electricity spot-price market data.