Vortrag
Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany

Wolf-Peter Schill, Claudia Kemfert


25th Annual Congress of the European Economic Association : EEA 2010
Glasgow, Großbritannien, 23.08.2010 - 26.08.2010


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Abstract:
We develop a game-theoretic electricity market model that allows analyzing strategic electricity storage in an imperfect market setting. We apply the model to Germany and examine different cases of pumped hydro storage operation. We find that introducing storage smoothes market prices and increases consumer rent and overall welfare. Electricity producers generally suffer from storage. The utilization of storage capacities depends on their operator's ability to exert market power both regarding storage and conventional generation. Strategic operators tend to under-utilize their storage capacities. The distribution of storage capacities among players also matters. Accordingly, economic regulation of storage capacities may be necessary.

Abstract

We develop a game-theoretic electricity market model that allows analyzing strategic electricity storage in an imperfect market setting. We apply the model to Germany and examine different cases of pumped hydro storage operation. We find that introducing storage smoothes market prices and increases consumer rent and overall welfare. Electricity producers generally suffer from storage. The utilization of storage capacities depends on their operator's ability to exert market power both regarding storage and conventional generation. Strategic operators tend to under-utilize their storage capacities. The distribution of storage capacities among players also matters. Accordingly, economic regulation of storage capacities may be necessary.

Wolf-Peter Schill

Stellvertretender Abteilungsleiter in der Abteilung Energie, Verkehr, Umwelt

Claudia Kemfert

Abteilungsleiterin in der Abteilung Energie, Verkehr, Umwelt



JEL-Classification: Q40;Q41;L13;D43
Keywords: Electric Power Markets, Storage, Market Power, Nash-Cournot
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