The value of compressed air energy storage in energy and reserve markets

Storage devices can provide several grid services, however it is challenging to quantify the value of providing several services and to optimally allocate storage resources to maximize value. We develop a co-optimized Compressed Air Energy Storage (CAES) dispatch model to characterize the value of providing operating reserves in addition to energy arbitrage in several U.S. markets. We use the model to: (1) quantify the added value of providing operating reserves in addition to energy arbitrage; (2) evaluate the dynamic nature of optimally allocating storage resources into energy and reserve markets; and (3) quantify the sensitivity of CAES net revenues to several design and performance parameters. We find that conventional CAES systems could earn an additional $23 +/- 10/kW-yr by providing operating reserves, and adiabatic CAES systems could earn an additional $28 +/- 13/kW-yr. We find that arbitrage-only revenues are unlikely to support a CAES investment in most market locations, but the addition of reserve revenues could support a conventional CAES investment in several markets. Adiabatic CAES revenues are not likely to support an investment in most regions studied. Modifying CAES design and performance parameters primarily impacts arbitrage revenues, and optimizing CAES design will be nearly independent of dispatch strategy. (C) 2011 Elsevier Ltd. All rights reserved.