Market strategies for large-scale energy storage: Vertical integration versus stand-alone player

Résumé En

New projects using existing storage technologies such as Pumped Hydro Storage (PHS) face uncertainty due to the lack of clear business models. Market regimes have generally tended to embed storage and generators within the central management of operators with multiple assets such as the French EdF (Electricité de France). By means of back-casting, this study depicts the role of storage in the power market, within the vertical integration in the governance portfolio of EdF. A dynamic algorithm simulates hourly operation under two different storage strategies, daily and weekly, and the results are compared with actual patterns over the period 2015–2019. This reveals missing money for a stand-alone player due to price arbitrage caused by low spread, and missing market opportunities. This suggests that the economics of storage are not driven by spot prices alone, but by other services, such as the energy block provision in support of nuclear power. Differential calculus is used to estimate the value of flows integrating the duration of storage and its seasonality. These findings further support the French regulator to install new PHS despite the lack of profitability, by means of capacity-energy hybrid contracts for new competitors in place of the existing government-industry structure.