On the Efficiency of Competitive Energy Storage

Richard Schmalensee

June 2019

When energy storage is employed to facilitate large-scale integration of intermittent renewable electricity generation, do competitive bulk power markets continue to provide incentives for efficient investment? This essay adds competitively-supplied storage to a Boiteux-Turvey model of an electric power system with two types of periods. In the most interesting, tractable cases of this dynamic model, all efficient points are long-run competitive equilibria, and the long-run equilibrium value of storage capacity minimizes expected system cost conditional on generation capacities. But the analysis here cannot rule out the existence of inefficient equilibria.

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