Description

As decarbonisation progresses, increasing amounts of electricity storage will be required to align inelastic intermittent renewable generation with largely inelastic consumption. Maximising the value of additional storage capacity requires effiicient operation. This paper analyses the influence of price forecast errors, risk aversion and hedging products on electricity storage operation. Independently, both forecast errors and risk-aversion reduce efficiency of operation. Inefficiencies associated with forecast errors are greater than inefficiencies associated with risk-averse behaviour. Together, risk-averse behaviour can reduce the inefficiencies associated with forecast errors. Therefore, in the presence of future market price uncertainty, additional market price risk exposure can increase, rather than decrease, total operational efficiency. Common market measures to correct for market price risk may therefore decrease the efficiency of storage operation.

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