New Order Type and Benefit Compensation Model for Utilizing Energy Storage in European Day-Ahead Electricity Markets

Abstract

The price of electricity has fluctuated strongly in the European electricity day-ahead market in recent years, and in some areas the variation within a day has been very high. The fluctuation is problematic for electricity consumers and for both production and consumption investments. Energy storage could stabilize the day-ahead electricity market, but the problem is the prediction of the timing of charging and discharging and the strong cannibalization of their economic profitability, which is also desired from energy storage. This paper presents a proposal for a new order type for bidding in the day-ahead electricity market, in which the price-setting algorithm would determine the optimal timing for the use of energy storage. In addition, a benefit compensation procedure linked to the new order type is proposed, which would prevent cannibalization and increase the attractiveness of the day-ahead market for energy storage. This could stabilize the price fluctuation of the day-ahead market.