The impact of wind uncertainty on the strategic valuation of distributed electricity storage

The intermittent nature of wind energy generation has introduced a new degree of uncertainty to the tactical planning of energy systems. Shortterm energy balancing decisions are no longer (fully) known, and it is this lack of knowledge that causes the need for strategic thinking. But despite this observation, strategic models are rarely set in an uncertain environment. And even if they are, the approach used is often inappropriate, based on some variant of scenario analysis – what-if analysis. In this paper we develop a deterministic strategic model for the valuation of electricity storage (a battery), and ask: “Though leaving out wind speed uncertainty clearly is a simplification, does it really matter for the valuation of storage?”. We answer this question by formulating a stochastic programming model, and compare its valuation to that of its deterministic counterpart. Both models capture the arbitrage value of storage, but only the stochastic model captures the battery value stemming from wind speed uncertainty. Is the difference important? The model is tested on a case from Lancaster University’s campus energy system where a wind turbine is installed. From our analysis, we conclude that considering wind speed uncertainty can increase the estimated value of storage with up to 50% relative to a deterministic estimate. However , we also observe cases where wind speed uncertainty is insignificant for valuation. Pedro Crespo Del Granado1 · Zhan Pang2 Energy Science Center, ETH Zürich1 Sonneggstrassse 28, 8092 Zürich, Switzerland. E-mail: [email protected] Department of Management Science, Lancaster University Management School1,2 Lancaster LA1 4YX, United Kingdom. E-mail: [email protected] Stein W. Wallace Department of Business and Management Science, Norwegian School of Economics NO-5045 Bergen, Norway. E-mail: [email protected] 2 Pedro Crespo Del Granado et al.