Grand Challenges: Market Design, Energy Storage, and Interconnection to the U.S. Power Grid
To facilitate large-scale deployment of renewable energy on the U.S. power grid, storage units such as batteries are essential to ensure consistent power supply. In the meantime, both generators and batteries need to pay for the cost to connect to the U.S. power grid, known as interconnection costs, which are high in places lacking grid infrastructure and hard to connect to the power grid. This study is examining how the locations of the current batteries may be sub-optimal. On one hand, batteries may choose to locate near existing generators, benefiting from the established grid infrastructure and incurring lower interconnection costs. On the other hand, the value of batteries is higher when they are located close to points of congestion, but these locations may have higher interconnection costs and could be less attractive to generators and batteries. This project will assemble new data sets on interconnection costs from engineering studies and integrate them with pricing and production data from electricity markets. The project will then use the data to develop and estimate models of generator and battery locations and compute the welfare gains from optimal mechanisms to site new generators and batteries.