Strategic behaviour and ownership of energy storage systems in pool-based electricity markets

The business case for Energy Storage Systems (ESS) as an alternative to traditional network reinforcements can be improved if the ESS are able to access additional revenue streams by participating in energy and ancillary services markets. To enable this, the storage needs to be operated by private merchants to circumvent the unbundling principle applied in electricity markets today. However, it is not clear if the right incentives are in place to operate the ESS in a way that supports the wider system welfare. This work seeks to evaluate the strategic behavior of an independent trader operating ESS in a pool based electricity market. The interaction between the ESS operator and the Market Operator (MO) is modelled as a Stackelberg Game where the impact of ESS bids and offers on the price formation is modelled by a bi-level optimization problem. The upper level problem maximizes ESS profits by anticipating the actions of the MO whose market clearing is modelled in the lower level problem. The latter contains a DC-Optimal Power Flow formulation to evaluate the possibility to exploit network topology and congestion to increase ESS profits and hence enable a way to identify market conditions that are likely to lead to ESS gaming.