Risk-aware Participation in Day-Ahead and Real-Time Balancing Markets for Energy Storage Systems

The increasing volatility of electricity prices due to increased uncertain renewable energy generation gives rise to interesting short-term arbitrage opportunitites for Energy Storage Systems (ESS) operators. Whereas prior research has shown the possibility to exploit inter-temporal arbitrage opportunities in the real-time balancing market, this paper formulates a two-stage optimization methodology that allows ESS operators to also engage in inter-market arbitrage by participating in both the day-ahead and real-time balancing markets. However, the effectiveness of such a strategy is heavily influenced by expected inter-market price differentials, which is known to be difficult to predict when it involves the imbalance price. To address this issue, we propose a risk-averse approach by incorporating the conditional value at risk in the ESS objective function. The proposed methodology is applied to a case study of the Belgian electricity market, where we demonstrate the effectiveness of (i) the combined market participation compared to an ESS participating in either market, and (ii) the risk-aware methodology by showcasing improved expost out-of-sample profit performance of a risk-averse compared to a risk-neutral ESS.