On the Tension between Flexibility and Market Power in the Electricity Market

Storage system provides the urgently needed flexibility to the power grid. Thanks to its falling cost, recent years have witnessed a rapidly increasing penetration level of storage in power system. Storage system can improve the system resilience. It can also be used to conduct arbitrage in the market. Hence, large-scale deployment of storage will inevitably change the electricity market structure. This shift brings new opportunities and challenges. We focus on understanding the tension between flexibility and market power when energy storage is adopted as public asset, i.e., it is invested and managed by the independent system operator (ISO). To quantify the tension, we conduct numerical studies to show how market power changes as the penetration of storage increases. Our results show that publicly- owned storage helps to stabilize and mitigate market power.