Multi-service Storage Capacity Management by Cumulative Prospect Based Portfolio Theory

Energy storage (ES) is vital in electricity markets and its operation is currently forced on single market service. However, ES could get more profits by participating in multiple market services. Thus, the potential of ES is undervalued, and ES cannot get sufficient incentives. In addition, the benefits and risks vary significantly over different markets, which causes severe challenges for ES to manage its capacity optimally over its daily cycle. Portfolio Theory, an optimal trading tool to maximise expected return while minimising corresponding risk, is introduced to quantify the ES capacity allocation over multiple markets. This paper models expected returns and risks of ES over the energy arbitrage market, enhanced frequency response market, and distribution network operator’s (DNO’s) market. Corresponding to risk over markets, risk aversion level of the storage is evaluated based on the Cumulative Prospect Theory, which is depicted as its indifference curve. The optimum portfolio is calculated by the intersection between the efficient frontier and indifference curve. Then, the ES operation strategy is designed via Robust Optimisation to ensure maximum profit under market price signals uncertainty. Results show the proposed method models risk aversion level of ES more accurately. It also provides an efficient capacity sharing model and daily operation model for ES participating in multiple market services to gain maximum economic return at minimum risk under uncertainty.