Financial Storage Rights

Should energy storage buy and sell power at wholesale prices like utilities and generators, or should its physical and financial operation be asynchronyous as with transmission lines? In the first case, storage straightforwardly profits through intertemporal arbitrage, also known as load shifting and peak shaving. In this paper, the latter case, referred to as passive storage, is examined. Because passive storage does not make nodal price transactions, new mechanisms are necessary for its integration into electricity markets. This issue is addressed by further developing the analogy between energy storage and transmission. Specifically, financial rights are defined for storage, and tracing is extended to multiperiod power flows linked by storage. Like flowgate transmission rights, the new financial storage rights redistribute the system operator's merchandising surplus and enable risk-averse market participants to hedge against nodal price volatility resulting from storage congestion. Simple examples are given demonstrating the implementation of the new mechanisms. Game-theoretic analysis suggests that financial storage rights mitigate gaming when both the generator and load bid strategically.