Storage cycles

Abstract

We study the monopoly problem of a large-scale electricity storage unit that faces a periodic but uncertain demand over multiple cycles. Time is continuous and strategies are functions of time expressed in terms of power rates (rather than quantities). Storage buys in periods of below-average demand and sells when demand exceeds the mean. For different information structures we characterize the selling and buying strategies exactly as a pair of (time-varying) intensity and threshold time. This flexibility enables the operator to alleviate the impact of its market power over time within a cycle by smoothing out the (dis)charge rate. When the capacity is not too large in a sense we make precise, the storage operator trades that capacity in full every cycle, even under rate (dis)charge constraints. For a large capacity, intertemporal (dynamic) linkages emerge across cycles. Depending on the demand realization, the storage operator may save some energy to mitigate the impact of her market power when selling now and buying again later, may then gamble over the next cycle and may even buy more at t = 0 than in the one-cycle optimum.