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Optimal storage, investment and management under uncertainty: it is costly to avoid outages!

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Title: Optimal storage, investment and management under uncertainty: it is costly to avoid outages!
Authors: Geske, J
Green, R
Item Type: Journal Article
Abstract: We show how electricity storage is operated optimally when the load net of renewable output is uncertain. We estimate a diurnal Markov-process representation of how Germany’s residual load changed from hour to hour and design a simple dynamic stochastic electricity system model with non-intermittent generation technologies and storage. We derive the optimal storage, generator output and capacity levels. If storage capacity replaces some generation capacity, the optimal storage strategy must balance arbitrage (between periods of high and low marginal cost) against precautionary storage to ensure energy is available throughout a long peak in net demand. Solvingthe model numerically under uncertainty (only the transition probabilities to future loads are known), we compare the results to perfect foresight findings. The latter over-estimate the cost-saving potential of energy storage by 27%, as storage can take up arbitrage opportunities that would not be chosen if there was a need for precautionary storage.
Issue Date: 2020
Date of Acceptance: 24-Sep-2019
URI: http://hdl.handle.net/10044/1/74251
DOI: 10.5547/01956574.41.2.jges
ISSN: 0195-6574
Publisher: International Association for Energy Economics
Start Page: 1
End Page: 28
Journal / Book Title: Energy Journal
Volume: 41
Issue: 2
Copyright Statement: This is an open access article under the terms of the Creative Commons Attribution License (CC-BY), which permits use, distribution and reproduction in any medium, provided the original work is properly cited. All rights reserved.
Sponsor/Funder: Engineering & Physical Science Research Council (EPSRC)
Funder's Grant Number: EP/L014386/1
Keywords: Energy
1402 Applied Economics
Publication Status: Published
Online Publication Date: 2020
Appears in Collections:Imperial College Business School
Grantham Institute for Climate Change