On the efficiency of energy markets with non-merchant storage

Energy market designs with non-merchant storage
have been proposed in recent years, with the aim of achieving
optimal integration of storage. In order to handle the time-
linking constraints that are introduced in such markets, existing
works commonly make simplifying assumptions about the end-
of-horizon storage level. This work analyzes market properties
under such assumptions, as well as in their absence. We find
that, although they ensure cost recovery for all market partici-
pants, these assumptions generally lead to market inefficiencies.
Therefore we consider the design of markets with non-merchant
storage without such simplifying assumptions. Using an illustra-
tive example, as well as detailed proofs, we provide conditions
under which market prices in subsequent market horizons fail
to reflect the value of stored energy. We show that this problem
is essential to address in order to preserve market efficiency and
cost recovery. Finally, we propose a method for restoring these
market properties in a perfect-foresight setting.

Publication supported by EMB3Rs project.