Optimal Management of Wind Energy with Storage: Structural Implications for Policy and Market Design

It is well known that the generation resource uncertainty induced by significant wind capacity raises concerns about grid security, price stability, and revenue adequacy. One of the most promising solutions is the use of utility-scale energy storage, although the question of general implementation of this strategy remains unanswered. This paper uses a simplified model to show that simple rules exist that govern the decision to generate or store energy from a hybrid wind-storage system. The heuristics developed consider the combination of storage efficiency, electricity price, and shortfall penalty and wind forecast characteristics to guide the decision of whether to bid energy into the electricity market or not. Specifically, this paper develops the optimal strategy for use of a simplified system of an energy storage unit with a wind generator. The solution is analyzed using a dynamic programming formulation in a simplified framework over a multiperiod planning horizon. The analysis of the solutio...