The role of electricity market design for energy storage in cost-efficient decarbonization

Energy storage is widely recognized by power system utilities and regulators as a crucial resource for achieving energy decarbonization. However, in deregulated power systems, investor-owned storage participates in electricity markets with a profit-driven motive. The alignment of such profit-driven operations with social welfare critically depends on market design and storage’s participation choices. This study employs an agent-based approach and investigates the impact of different market participation options on storage’s contribution to reducing electricity costs and carbon emissions. Our findings suggest that the existing electricity pool market design in North America may encourage early-stage storage adoptions but hinder progress toward deep decarbonization. We found that day-ahead markets are more effective in utilizing storage to reduce carbon emissions, while real-time markets are more effective in reducing costs. We compare different combinations of storage market participation choices and conclude trade-offs between consumer energy affordability and carbon emissions.