An important function of aggregators is to enable the participation of small energy storage units in electricity markets. This paper studies two generally overlooked aspects related to aggregators of energy storage: i) the relationship between the aggregator and its constituent storage units and ii) the aggregator's effect on system welfare.Regarding i), we show that short-term outcomes can be Pareto-inefficient: all players could be better-off. In practice, however, aggregators and storage units are likely to engage in long rather than short-term relationships. Using Nash Bargaining Theory, we show that aggregators and storage units are likely to cooperate in the long-term. A rigorous understanding of the aggregator-storage unit relationship is fundamental to model the aggregator's participation in the market. Regarding ii), we first show that a profit-seeking energy storage aggregator is always beneficial to the system when compared to a system without storage, regardless of size or market power the aggregator may have. However, due to market power, a monopolist aggregator may act in a socially suboptimal manner. We propose a pricing scheme designed to mitigate market power abuse by the aggregator. This pricing scheme has several important characteristics:its formulation requires no private information, it incentivizes a rational aggregator to behave in a socially optimal manner, and allows for regulation of the aggregator's profit.
Index TermsEnergy storage, aggregators, market power, bargaining.
I. INTRODUCTIONT HE adoption of household-level energy storage systems is expected to increase rapidly in the coming years (residential energy storage grew by 405% in 2015) and become a significant share of the total U.S. energy storage deployment [1]. These storage units (SUs) have the potential of selling services to the power grid [2] but may not be able to directly do so for two main reasons: i) their individual capacities are smaller than the required minimum [3], [4]; and ii) the large number of SUs would make their management difficult even if they are allowed to participate [5]. Therefore, aggregators act as mediators between SUs and the power system [6]. A number of studies regarding the operation and market strategies of aggregators have been conducted. For instance, the authors of [5], [7] study the aggregation of a fleet of electric vehicles while [8] studies the coordination The authors are with the Department of Electrical Engineering at the University of Washington. Emails: {jcontrer, maov, zhangbao}@uw.edu.