Control of Energy Storage with Market Impact: Lagrangian Approach and Horizons

AbstractElectricity storage is likely to play a significant role in balancing future energy systems. Often, much of the value of large-scale storage (e.g., pumped storage and hydro) may be captured in price arbitrage. In “Control of Energy Storage with Market Impact: Lagrangian Approach and Horizons,” J. Cruise, L. Flatley, R. Gibbens, and S. Zachary study the optimal control of storage that is sufficiently large as to impact on the market in which it operates and that seeks to maximize the profit that can be made by buying and selling over time. They develop the associated strong Lagrangian theory, which is of economic significance when storage is embedded in wider systems, and provide forecast and decision horizons for the optimal control, together with an algorithm suitable for control over an indefinite time period.We study the control of large-scale energy storage operating in a market. Reoptimization of deterministic models is a common pragmatic approach when prices are stochastic. We apply Lagrangian theory to develop such a model and to establish decision and forecast horizons when storage trading affects these prices, an important aspect of some energy markets. The determination of these horizons also provides a simple and efficient algorithm for the determination of the optimal control. The forecast horizons vary between one and 15 days in realistic electricity storage examples. These examples suggest that modeling price impact is important.The e-companion is available at https://doi.org/10.1287/opre.2018.1761.