Estimating the Maximum Potential Revenue for Grid Connected Electricity Storage: Arbitrage and Regulation

Technical Report · Sat Dec 01 04:00:00 EST 2012

DOI:https://doi.org/10.2172/1088080· OSTI ID:1088080

Byrne, Raymond Harry ^[1]; Silva-Monroy, César Augusto ^[1]

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1. Sandia National Lab. (SNL-NM), Albuquerque, NM (United States)

The valuation of an electricity storage device is based on the expected future cash flow generated by the device. Two potential sources of income for an electricity storage system are energy arbitrage and participation in the frequency regulation market. Energy arbitrage refers to purchasing (storing) energy when electricity prices are low, and selling (discharging) energy when electricity prices are high. Frequency regulation is an ancillary service geared towards maintaining system frequency, and is typically procured by the independent system operator in some type of market. This paper outlines the calculations required to estimate the maximum potential revenue from participating in these two activities. First, a mathematical model is presented for the state of charge as a function of the storage device parameters and the quantities of electricity purchased/sold as well as the quantities offered into the regulation market. Using this mathematical model, we present a linear programming optimization approach to calculating the maximum potential revenue from an electricity storage device. The calculation of the maximum potential revenue is critical in developing an upper bound on the value of storage, as a benchmark for evaluating potential trading strategies, and a tool for capital finance risk assessment. Then, we use historical California Independent System Operator (CAISO) data from 2010-2011 to evaluate the maximum potential revenue from the Tehachapi wind energy storage project, an American Recovery and Reinvestment Act of 2009 (ARRA) energy storage demonstration project. We investigate the maximum potential revenue from two different scenarios: arbitrage only and arbitrage combined with the regulation market. Our analysis shows that participation in the regulation market produces four times the revenue compared to arbitrage in the CAISO market using 2010 and 2011 data. Then we evaluate several trading strategies to illustrate how they compare to the maximum potential revenue benchmark. We conclude with a sensitivity analysis with respect to key parameters.

• Research Organization: Sandia National Lab. (SNL-NM), Albuquerque, NM (United States)
• Sponsoring Organization: USDOE National Nuclear Security Administration (NNSA)
• DOE Contract Number: AC04-94AL85000
• OSTI ID: 1088080
• Report Number(s): SAND--2012-3863; 456396
• Country of Publication: United States
• Language: English

Related Subjects

electricity storage
energy arbitrage
frequency regulation market
linear programming optimization
storage valuation