Market Power and Withholding Behavior of Energy Storage Units

TL;DR

This paper addresses the challenge of identifying market power in electricity markets with increasing energy storage participation, focusing on multi-interval bidding and energy-constrained operation. It develops a convex self-scheduling framework for storage bidding, introducing a price sensitivity model $\lambda_t = \bar{\lambda}_t - \alpha_t q_t$ and an affine supply function to capture market power effects. The main results distinguish price-taker withholding from price-maker withholding through ex-post analyses grounded in KKT conditions, including a three-interval expansion and multi-interval considerations, and are validated with NYISO data showing how price volatility creates profit opportunities for both types of participants. The framework serves as an ex-post market monitoring tool that helps operators differentiate exploitative behavior from legitimate strategic withholding, with numerical experiments illustrating practical implications for market resilience and competitiveness.

Abstract

Electricity markets are experiencing a rapid increase in energy storage unit participation. Unlike conventional generation resources, quantifying the competitive operation and identifying if a storage unit is exercising market power is challenging, particularly in the context of multi-interval bidding strategies. We present a framework to differentiate strategic capacity withholding behaviors attributed to market power from inherent competitive bidding in storage unit strategies. Our framework evaluates the profitability of strategic storage unit participation, analyzing bidding behaviors as both price takers and price makers using a self-scheduling model, and investigates how they leverage market inefficiencies. Specifically, we propose a price sensitivity model derived from the linear supply function equilibrium model to examine the price-anticipating bidding strategy, effectively capturing the influence of market power. We introduce a sufficient ex-post analysis for market operators to identify potential exploitative behaviors by monitoring instances of withholding within the bidding profiles, ensuring market resilience and competitiveness. We discuss and verify applicability of the proposed framework to realistic settings. Our analysis substantiates commonly observed economic bidding behaviors of storage units. Furthermore, it demonstrates that significant price volatility offers considerable profit opportunities not only for participants possessing market power but also for typical strategic profit seekers.

Figures (3)

• Figure 1: Bidding behavior of participants as a price taker ($q'(\lambda)$, solid line) and a price maker ($q"(\lambda)$, dashed line) and the corresponding impacts on the market outcome: (a) bid supply curves, (b) market clearing results. The axis $Q$ measures power output. The supply function $\tilde{q}(\lambda)$ represents the remainder of the aggregated supply within the system. Demand is considered inelastic at $D$, $\Delta q_t$ indicates the equivalent capacity withholding. $q'(\lambda)$ is the optimal solution to problem \ref{['eq:bidding_taker']}, and $q"(\lambda)$ is that to problem \ref{['eq:bidding_maker']}.
• Figure 2: Bidding pattern regarding capacity withholding as a price taker or a price maker given strictly heterogeneous prices.
• Figure 3: Storage unit control policy and the resulting market clearing price considering different market participants as price maker with low market power ($\mathrm{maker}_l$), high market power ($\mathrm{maker}_h$), and price taker: (a) storage power output (positive values mean that unit is discharging), (b) market clearing price.

Theorems & Definitions (20)

• Definition 1: Price Taker
• Definition 2: Price Maker
• Remark 1
• Remark 2
• Theorem 1
• Proposition 1
• proof
• Proposition 2
• proof
• Remark 3