Impact of Energy Storage on Market-Based Generation Investment Planning

Previous work has analyzed the role of energy storage (ES) on generation investment planning through centralised cost-minimization models which are inherited from the era of regulated electricity utilities. This paper investigates this issue in the context of the deregulated market environment by proposing a new strategic generation investment planning model. The decision making of a strategic generation company is modeled through a multi-period bi-level optimization problem, where the upper level determines the profit-maximizing investment decisions of the generation company and the lower level represents the market clearing process, accounting for the time-coupling operational characteristics of ES. This bi-level problem is solved after converting it to a single-level mixed-integer linear problem (MILP). Case studies demonstrate that the introduction of ES reduces the total generation capacity investment and enhances investments in “must-run” base-load generation over flexible peaking generation, yielding significant system cost savings.