DP15444 Storing Power: Market Structure Matters

Author(s): David Andrés-Cerezo, Natalia Fabra
Publication Date: November 2020
Keyword(s): electricity, investment, market structure, Storage, Vertical Relations
JEL(s):
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15444

We asses how firms' incentives to operate and invest in energy storage depend on the market structure. For this purpose, we characterize equilibrium market outcomes allowing for market power in storage and/or production, as well as for vertical integration between storage and production. Market power reduces overall effciency through two channels: it induces an ineffcient use of the storage facilities, and it distorts investment incentives. The worst outcome for consumers and total welfare occurs under vertical integration. We illustrate our theoretical results by simulating the Spanish wholesale electricity market for different levels of storage capacity. The results are key to understand how to regulate energy storage, an issue which is critical for the deployment of renewables.