Economics of emerging electric energy storage technologies and demand response in deregulated electricity markets

Unlike markets for storable commodities, electricity markets depend on the real-time balance of supply and demand. Although much of the present-day grid operates effectively without storage, cost-effective ways of storing electrical energy can help make the grid more efficient and reliable. I have investigated the economics of two emerging electric energy storage (EES) technologies: sodium sulfur (NaS) batteries and flywheels in the electricity markets operated by the New York Independent System Operator (NYISO) and the PJM Interconnection (PJM). The analysis indicates that there is a strong economic case for flywheel installations in both the PJM and NYISO markets for providing regulation services. The economic case for NaS batteries for energy arbitrage is weak in both NYISO and PJM. Some of the uncertainties regarding regulation market rules are one of the reasons for lack of investment in flywheels. On the other hand, some market participants have already made investments in NaS batteries due to anticipated system upgrade deferral benefits. Capital cost reduction and efficiency are important factors that will influence the economics of NaS batteries for energy arbitrage in deregulated electricity markets.; I have also analyzed the economic demand response program offered by PJM. PJM's program provided subsidies to customers who reduced load in response to price signals before 2008. The program incorporated a "trigger point", set at a locational marginal price of {dollar}75/MWh, at or beyond which payments for load reduction included a subsidy payment. Particularly during peak hours, such a program saves money for the system, but the subsidies involved may introduce distortions into the market, I have simulated demand-side bidding into the PJM market, and compare the economic welfare gains with the subsidies paid to price-responsive load using load and price data for year 2006. The largest economic effect is wealth transfers from generators to non price-responsive loads. Based on the incentive payment structure that was in effect through the end of 2007, I estimate that the social welfare gains exceeded the subsidies during 2006. Lowering the trigger point increases the transfer from generators to consumers, but may result in the subsidy outweighing the social welfare gains due to load curtailment.