Storing Power: Market Structure Matters

The paper presented in this Decarbonization Seminar assess how firms' incentives to operate and invest in energy storage depend on the market structure. For this purpose, the authors characterize equilibrium market outcomes allowing for market power in storage and/or production, as well as for vertical integration between storage and production. Market power reduces overall efficiency through two channels: it induces an ineffecient use of the storage facilities, and it distorts investment incentives. The worst outcome for consumers and total welfare occurs under vertical integration. The results are key to understanding how to regulate energy storage, an issue which is critical for the deployment of renewables.