Is It More Valuable to Store or Destroy Electricity Surpluses?

A typical strategy for dealing with commodity surpluses is to store them for future sale; though electricity cannot yet be stored on a large scale, this storage strategy will become a natural choice for dealing with electricity surpluses. However, because electricity prices can be negative, there exists another potential strategy: To buy electricity surpluses at negative prices and dispose of them. While at first it may seem counterintuitive to derive profits from destroying electricity, it has never been established whether a storage strategy or a disposal strategy would be more valuable for a merchant who trades electricity in a market. We investigate this question by modeling the problem of managing an electricity storage facility facing prices that can be negative: By varying the efficiency of the storage facility, our model encompasses both the case when electricity surpluses are stored and the case when they are destroyed. We establish the optimal policy structure of our system, showing that it differs significantly from the known optimal policy structure of commodity storage when prices are positive. Using our optimal policy, we compare storage and disposal strategies based on an existing electricity price model calibrated to historical electricity prices. Our experiments suggest that the disposal strategy can be even more valuable for an electricity merchant than the storage strategy.