Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/286374 
Year of Publication: 
2023
Series/Report no.: 
EWI Working Paper No. 23/01
Publisher: 
Institute of Energy Economics at the University of Cologne (EWI), Cologne
Abstract: 
Increasing shares of wind and solar generation serve to decarbonize electricity generation; however, their temporal and spatial variability poses challenges in grid operation. While grid expansion is restricted in the medium term, storage technologies can potentially increase the power systems' efficiency by temporally aligning generation and demand and increasing network utilization. This paper uses a theoretical and a numerical model to evaluate the optimal allocation of battery storage. In a case study for Germany, we find that batteries can reduce system costs when placed behind the north-south grid bottleneck and near solar power. The supply costs in a setting with uniform prices and a random battery distribution are 9.3% higher than in the theoretical first-best benchmark with nodal prices. An optimal allocation of batteries can reduce this efficiency gap by 0.7 percentage points to 8.6%. This corresponds to almost a doubling of the supply cost savings per euro spent on battery installation. Due to a lack of spatially differentiated investment incentives under the German uniform pricing scheme, batteries have to be allocated by additional policies. Simple allocation rules such as tying battery siting to solar capacity or explicitly identifying a limited number of suitable sites and auctioning capacity can approximate an optimal allocation.
Subjects: 
Market Design
Electricity Markets
Nodal Pricing
Energy System Modeling
Renewable Energies
Storage
Flexibility
Batteries
JEL: 
D47
D61
C61
Q40
Document Type: 
Working Paper

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