How Uncertainty Shapes Electricity Storage Decisions: Dispatch Policies and Capacity Portfolios under Renewable Drought Risk

Cem Keske, Bjarne Steffen, and John E. Parsons

February 2026

With increasing shares of intermitting renewables, electricity storage assets are increasingly considered as a way to ensure resource adequacy. Using storage assets to that end, however, involves trade-offs with timespread arbitrage. To study these trade-offs, we model the optimal dispatch of an electricity storage asset in the face of uncertain renewable generation. We then embed this within a classic capacity expansion model. We use a parameter driven stochastic process to model the uncertainty, which enables us to analyze how the inter-temporal structure of the uncertainty shapes the optimal dispatch and the optimal portfolio of capacities. We show how the optimal dispatch policy changes with the decay time of renewable drought episodes, and how it varies with the storage asset’s duration and round-trip efficiency. We also illustrate how the dispatch of one storage asset depends on the features and state of charge of other storage assets in the system, and demonstrate conditions under which one asset can charge while another is discharging. Finally, we show how these drivers affect the optimal portfolio of capacities, system cost, and loss-of-load events.