Can Merchant Demand Response Affect Investments in Merchant Energy Storage?

Demand response (DR) and energy storage (ES) technologies are seen as almost perfect substitutes for providing spatiotemporal energy arbitrage in power systems with high penetrations of renewable generation. Using both technologies simultaneously is favorable from the system perspective, but may cause profit scarcity for merchant DR aggregators and ES investors. This paper presents an equilibrium problem with equilibrium constraints (EPEC) that models interactions between the merchant DR aggregator and the merchant ES investor in a competitive electricity market. The proposed EPEC is solved using the diagonalization method on an ISO New England testbed with a prospective renewable generation portfolio and different techno-economic parameters of prospective DR and ES technologies. The case study reveals that the optimal ES investments are sensitive to the availability of DR resources, as well as to the ES capital cost and cycling efficiency.