Reducing electricity price volatility via stochastic storage control

Abstract

© 2016 American Automatic Control Council (AACC).Electricity price volatility has been a significant concern for several market participants, including suppliers and load-serving entities, because risks imposed by price volatility increase uncertainty in their revenues. A large penetration of variable wind and solar generation is expected to further amplify price fluctuations. To reduce electricity price volatility, we propose a stochastic optimal control method for energy storage, which has three major advantages. First, the proposed dynamic programming approach optimally shifts energy over time and space (via transmission lines) by fully utilizing the distributional information of uncertain net demand. Second, the suggested storage operation by the System Operator does not interfere with currently used optimal economic dispatch rule in real-time markets and, hence, it is compatible with conventional electricity risk management tools. Third, the results of our numerical experiment show that only a small number of storage devices, which contribute little to saving generation costs, can considerably reduce price volatility. These results suggest that energy storage is particularly useful in mitigating price variations and that its value will stand underestimated if we neglect its utility in reducing price volatility.