Participation of an Energy Storage Aggregator in Electricity Markets (1708.00989v1)

Abstract: An important function of aggregators is to enable the participation of small energy storage units in electricity markets. This paper studies two generally overlooked aspects related to aggregators of energy storage: i) the relationship between the aggregator and its constituent storage units and ii) the aggregator's effect on system welfare. Regarding i), we show that short-term outcomes can be Pareto-inefficient: all players could be better-off. In practice, however, aggregators and storage units are likely to engage in long rather than short-term relationships. Using Nash Bargaining Theory, we show that aggregators and storage units are likely to cooperate in the long-term. A rigorous understanding of the aggregator-storage unit relationship is fundamental to model the aggregator's participation in the market. Regarding ii), we first show that a profit-seeking energy storage aggregator is always beneficial to the system when compared to a system without storage, regardless of size or market power the aggregator may have. However, due to market power, a monopolist aggregator may act in a socially suboptimal manner. We propose a pricing scheme designed to mitigate market power abuse by the aggregator. This pricing scheme has several important characteristics: its formulation requires no private information, it incentivizes a rational aggregator to behave in a socially optimal manner, and allows for regulation of the aggregator's profit.