Market Mechanisms for Cooperative Operation of Price-Maker Energy Storage in a Power Network

We explore the integration of large-scale, grid-level energy storage into wholesale electricity markets. We conduct a comparative analysis on three natural market mechanisms that have appeared in the literature: 1) the centralized mechanism according to which all batteries are centrally operated to minimize the social cost, 2) the semi-centralized mechanism under which the batteries are centrally operated subject to the constraints specified by a single storage owner (on the maximum amount of withdrawn and charged energy in each period), and 3) the deregulated mechanism according to which the storage owner can freely operate batteries so as to maximize her profit. Under some mild assumptions, we establish the equivalence between the semi-centralized and the deregulated mechanisms: The two mechanisms result in the same storage operation and the same dispatch of generation. Motivated by this equivalence result, we propose a modified version of the semi-centralized mechanism so as to better tradeoff social cost and storage owner's profit by imposing an additional regulatory constraint. We conduct numerical experiments on (modified) IEEE 14- and 57-bus test systems to demonstrate the established theoretical results.