Electricity storage and market power

• Published in: Energy policy Vol. 164; p. 112872
• Main Authors: Williams, Olayinka, Green, Richard
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier Ltd 01.05.2022; Elsevier Science Ltd
• Subjects: Competitors; Consumer surplus; Electric energy storage; Electricity; Electricity market; Electricity storage; Energy policy; Generators; Market power; Markets; Ownership; Power; Prices; Revenue; Shadow prices; Storage; Welfare; Consumer surplus; Market power; Electricity storage; Welfare; Electricity market
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2022.112872

Electricity storage is likely to be an important factor in balancing fluctuations in renewable generators' output, but concentrated ownership could lead to market power. We model this for short-term (daily) storage in the British electricity wholesale market, with generating companies acting as either price-takers or Cournot competitors. We discuss how competitive storage charging and discharging behaviour depends on the balance between the market price and shadow price of stored electricity. Electricity storage raises welfare, consumer surplus and renewable generators’ revenues, while reducing revenues for conventional generators. Market power in storage slightly reduces the welfare gains; Cournot behaviour by generators reduces welfare but has relatively little impact on the incremental effect of storage. Market power in electricity storage is undesirable, but market power in generation is much worse. The interactions between market power in generation and in storage are complex, suggesting that predictions from one market may not apply elsewhere and context-specific modelling will be valuable. [Display omitted] •We model generators, storage and market power in the British electricity market.•We explain how shadow prices determine charging and discharging behaviour.•Storage benefits consumers and renewables but reduces other generators' profits.•Generator market power has little effect on the welfare gains from storage.•Storage market power significantly reduces its use and welfare gains fall slightly.