Risk-Averse Self-Scheduling of Storage in Decentralized Markets

Abstract: Storage is expected to be a critical source of firming in low-carbon grids. A common concern raised from ex-post assessments is that storage resources can fail to respond to strong price signals during times of scarcity. While commonly attributed to forecast error or failures in operations, we posit that this behavior can be explained from the perspective of risk-averse scheduling. Using a stochastic self-scheduling framework and real-world data harvested from the Australian National Electricity Market, we demonstrate that risk-averse storage resources tend to have a myopic operational perspective, that is, they typically engage in near-term price arbitrage and chase only few extreme price spikes and troughs, thus remaining idle in several time periods with markedly high and low prices. This has important policy implications given the non-transparency of unit risk aversion and apparent risk in intervention decision-making.