Merchant and regulated storage investment in energy and reserve markets: A Stackelberg game

With large-scale integration of renewable generation, energy storage is expected to play an important role in providing flexibility to energy systems. In this paper, the authors construct a trilevel Stackelberg game model to study the co-investment of merchant and regulated storage in energy and reserve markets. The upper-level problem is a profit-maximizing storage investment problem with a desired rate-of-return solved by a merchant investor. In the middle-level problem, the system operator (SO) makes regulated storage investment decisions to minimize system cost. In the lower-level problem, the SO clears energy and reserve markets. The proposed model captures interactions of regulated and merchant storage investment. Also, it clarifies how different ownership structures of storage influence merchant storage profitability and system cost structures in different capital cost of storage investment and wind penetration level scenarios. The numerical results conducted on a 6-bus illustrative example and the IEEE 24-bus Reliability test case validate the proposed model. The results show that both regulated and merchant storage can increase social welfare, and social welfare remains almost the same under different ownership structures of storage.