A methodology for the economic evaluation of power storage technologies in the UK market

Abstract

In this thesis, we present a methodology for assessing the economic impact of power storage technologies. The methodology is founded on classical approaches to the optimal stopping of stochastic processes. Power storage is regarded as a complement to the intermittent output of renewable energy generators, and is important in contributing to the reduction of carbon intensive power generation. Therefore, the recommendations to study the future economic storage assessment have been increased. Our aim is to present a methodology suitable for use by policy makers that is simple to maintain, adapt to different technologies and is easy to interpret. The thesis start by giving an overview of the UK power market and an introduction to storage technologies in Chapter 2. Chapter 3 summarize the mathematical tools, that the methodology is based on, more precisely the discretionary stopping theory based on dynamic programming techniques. An algorithm to assess the storage is presented in Chapter 4, where the storage problem is formulated as an entry, exit problem, which allow the investigation of different optimal strategies to fill and empty a storage facility. An analysis of power demand, and an approximation of power prices through the merit order curve of the UK power market presented in Chapter 5. Based on a theoretical study, the methodology is applied to a Compressed Air Energy Storage (CAES) in Chapter 6. Chapter 7 present an empirical study that applied the methodology directly on the observed data, this approach is shown to have benefits over current techniques and is able to value, by identifying a viable optimal operational strategy for a CAES operating in the UK market.