Charging the Renewable Transition: Modeling the Role of Battery Storage in the Energy Grid

Several strands of literature study the economics of energy grids. One recent working paper (Holland, Mansur, and Yates 2022) creates an economic model based on a social planner’s optimization problem: under economic and technological constraints, what role would different electricity generation and storage technologies play in long-run equilibrium? I extend this paper’s theoretical model by modifying the quality of the battery and the elasticity of demand for electricity. Theoretically, accounting for batteries’ loss of charge during charging and discharging should decrease the role of storage in long-run equilibrium, while making demand less elastic should increase its role. I seek to answer the question: when changing these two assumptions in the model, which effect dominates? Under what conditions does battery storage play a large role in a long-run equilibrium model of the energy grid? I present three key findings. First, battery capacity is 0 when demand for electricity is least elastic (-0.001) and the battery cost is highest (baseline), if the round-trip efficiency is 70% or lower. Second, for a 75% reduced cost battery, one arc elasticity of charging losses relative to elasticity is 0.5063; for a 95% reduced cost battery, one arc elasticity of charging losses relative to elasticity is 3.7801. Third, for a -0.05 elasticity case, one arc elasticity of charging losses relative to battery cost is 5. 6057; for a -0.001 elasticity case, one arc elasticity of charging losses relative to battery cost is 8. 7977.Bachelor of Scienc