6. Conclusions
This paper develops a stochastic energy storage valuation framework which allows an energy storage system to provide multiple services simultaneously. The frequency regulation service and energy shifting service are co-optimized in the wholesale power market operations. Within the stochastic valuation framework, a future curve dynamics model is developed to model the variability of electricity price and quantify the risks associated with energy storage system investment. Empirical results from the California electricity future market reveal that three uncertain factors can explain more than 90% of the variability in electricity future price. Valuation studies are conducted to demonstrate the usefulness of the proposed stochastic energy storage valuation framework. It is shown in the valuation results that the stochastic valuation methodology can provide an accurate estimation of both expected return and investment risk associated with a battery storage system. In addition, the valuation results show that both round-trip efficiency and power-to-energy ratio are crucial battery system design parameters for achieving cost effectiveness. Every 1% improvement in battery round-trip efficiency results in a roughly 1% increase in total expected net revenue. The optimal power-to-energy ratio for wholesale power market is much higher than the nominal configuration of 1-to-4 typically used in existing energy storage projects.
Future studies will consider more detailed models for energy storage degradation and life-time economic analysis of energy storage systems. A comprehensive cost effectiveness analysis will be conducted to compare energy storage systems with traditional fossil-fueled power plants. In addition, optimal penetration level of energy storage systems will be studied under different renewable penetration scenarios.
