Optimal trading of imbalance options for power systems using an energy storage device

Abstract

Energy storage devices are coming online in electricity markets around the world but are still considered an expensive solution to the load balancing problem. We propose a new market framework in which the owner of an electricity storage facility is able to optimally sell options and trade in the electricity market to add flexibility for the system operator at different times of the day. The storage operator has the possibility to optimally decide which option to offer, with the restriction of having the storage device in the appropriate mode and only at particular times. The system operator accepts these offers as possible long-term real-time balancing resorts. With the storage device in place, either electricity consumption or generated electricity can be increased in the network and in our framework this happens accordingly via the exercise of the corresponding option. Using a stochastic model for the imbalance, we calculate the real value of the optimal trading strategy for the storage operator and at the same time we can calculate the balancing cost of this resort compared to a so called "target cost" for the system operator. These results reveal that with proper parameter choices, mutual benefit is available, i.e. a financial profit for the storage operator whilst the balancing cost can also be reduced for the electricity system operator. Our results are illustrated via numerical calculations which are carried out after having the parameters of the model fit to real UK data. Optimal operational strategies are also described using our analysis.

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