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CEIC-13-05

The Effects of Bulk Electricity Storage on the PJM Market
Roger Lueken and Jay Apt

Abstract:
Recent advancements in battery technologies may make bulk electricity storage economically feasible. We analyze the value of two electrochemical storage technologies and traditional pumped hydropower storage in the 2010 PJM day-ahead energy market, using a reduced-form unit commitment model. We find that large-scale storage would increase overall social welfare in PJM.
However, the annualized capital costs of storage would exceed social welfare gains. Consumers would save up to $4 billion annually due to reduced peak prices and reduced reliance on expensive peaking generators. These savings are equivalent to ~10% of sales in the PJM day-ahead energy market. Savings come largely at the expense of generator surplus. Existing market mechanisms are insufficient to encourage the socially optimal quantity of storage. Storage reduces the profitability of generators and the need for peaking generation capacity. Storage modestly increases emissions of CO2 and other pollutants in a system with 2010 PJM characteristics.
 

 

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