Energy storage is arguably a vital element in maintaining a healthy reliable balance between supply and demand in the presence of intermittent green technologies such as wind power. When trying to understand the current and future role of energy storage, the first consideration is on the potential social benefits which storage might generate in the context of intermittent technologies. The impact of wind on price level and volatility comes from intermittency, which encompasses variability and forecast errors, hence, we approach the issue by considering grid-scale store capacity being used to flatten wind generation -as a measure to tackle the variability- and also capable of absorbing the wind forecast errors, therefore, mitigating the wind impact on the level and volatility of market prices. We use UK balancing market hourly information for the period between December 2014 and June 2016.

This empirical exercise involves a two-part model. In the first part, we model the impact of wind generation intermittency and forecast errors on the level and volatility of the market price through a Markov regime-switching model (RSM). In the second part, we evaluate what happens when we introduce a change in the system -i.e. a facility (or a groups of facilities), through which the generation from wind is flattened -to its daily average- and the forecast errors are absorbed. This may be seen as a first step towards examining the trade-offs over a range of storage levels covering different degrees of smoothing of wind output. Overall our preliminary results imply that introducing storage to render wind hourly generation into the activity of a smoother baseload plant and to absorb the forecast error, makes it more likely that lower and more stable market prices will be observed. Under the assumption that the effects on market prices are passed-through to final consumers, these results confirm that there are clear potential social advantages resulting from storage in the presence of intermittent wind generation.

This seminar has been jointly organized by FEEM and IEFE, Bocconi University.