A Mechanism for Selling Battery Storage Service in Day-Ahead Electricity Markets

A major impediment to high renewable energy penetration in the power grid is the absence of utility-scale storage capacity. The scenario changes substantially with increased Electric Vehicle (EV) penetration since EVs can provide battery storage as a service to the grid at times when they are parked. Information such as the times at which an EV can lease its battery to the grid, the amount of energy that must be injected into it by the time it disconnects, etc., are encoded in its valuation function, which is private to the EV. Similarly, the knowledge of a generator's production function is private to the generator. In particular, the Independent System Operator (ISO) does not know these quantities, which it requires to operate the grid optimally. Consequently, the ISO requests the generators and the EVs to bid their production and valuation functions respectively in the day-ahead market. However, being strategic, they may not bid them truthfully. Rather, they may bid strategically so as to maximize their own utilities. This in turn could result in inefficient grid operation. We provide a market-based solution to address this issue. Specifically, we present an efficient and incentive-compatible mechanism for day-ahead market operations that allows the ISO to elicit from the EVs and the generators all information that it requires to operate the grid at minimum possible cost while ensuring that the network constraints imposed by Kirchoff's laws and transmission line capacities are satisfied.