A Local Market Mechanism for Physical Storage Rights

This paper proposes a two-stage auction-based local market mechanism to allocate physical storage rights (PSRs). As a market product, PSRs are provided by a storage owner and enable the local market participants (including renewable producers, consumers and prosumers) to access the storage. That is, they can book storage in the form of PSRs and dispatch it at a given time aiming to maximize their utility function. The business options we examine to evaluate the position of storage in the market range from storage owner entirely participating in day-ahead (DA) and real-time (RT) markets as an inter-temporal arbitrager, to exclusively acting as a PSR provider in DA only - this way, the storage owner is fully paid upfront in DA. Considering the context above, we propose an equilibrium model where each player optimizes its operational objective. We prove that the equilibrium model can be substituted with an equivalent optimization formulation which clears the proposed market ensuring the same desirable market properties, such as efficiency and revenue adequacy. Results suggest that the certain revenues earned by the storage owner in DA when acting as a PSR provider is equal to its expected profit as a regular market participant, mitigating however its payoff uncertainty and resulting in the same economic return.