International Association for Energy Economics | 29 The Long-Run Impact of Energy Storage on Electricity Prices and Generating Capacity

Energy storage technologies can potentially help with integrating variable renewable electricity gen-erators such as wind farms and PV panels. At times of high generation and otherwise low demand, put-ting energy into storage is a valuable alternative to simply spilling excess power, and means that fossil generation can be displaced later at times of higher demand or lower renewable output. Increasing levels of variable renewable output have been associated with more volatile wholesale prices, which of course makes arbitrage strategies more profitable – the economic signal for energy storage complements the technical one. The use of storage to absorb excess renewable power could also counter the tendency for renewable output to become less valuable as more is produced (Swider and Weber, 2006; Lamont, 2008; Bushnell, 2010; Hirth, 2015).1 There is a natural limit on the amount of arbitrage that can be profitable, since it reduces the price differences that incentivise it. Furthermore, Green and Vasilakos (2011) have shown that the effect of renewables increasing price variability (and lowering average prices in some countries) is primarily a short-term phenomenon. Once the capacity mix has adjusted to the new shape of the load-duration curve (net of renewable output), the price-duration curve ought to revert to a similar form as without the renewable generators. We ask whether a similar result holds if energy storage technologies are widel