Bidding strategies for energy storage players in 100% renewable electricity market: A game-theoretical approach

Abstract

Large-scale energy storage is expected to be a pivotal source of flexibility in electricity systems supplied entirely by renewable energy sources (RES). However, its strategic role in market-based dispatch remains insufficiently understood. In a 100% RES market setting, storage can improve adequacy and renewable utilization by shifting energy across time. It can also acquire market power as the main flexible, price-making technology. In this paper, we develop a Cournot competition model in which storage operators choose quantity bids to maximize profit in a stylized day-ahead electricity market supplied only by RES. Market clearing is represented through residual-demand blocks so that renewable intermittency appears as an intertemporal arbitrage opportunity for storage operators. We formulate the storage operators' problem in two tractable ways: i) a continuous reformulation based on demand blocks, and ii) an equivalent mixed-integer linear programming (MILP) model with big-M linearization. Nash equilibria are computed with an iterative best-response procedure and benchmarked against a centralized social planner problem to quantify efficiency losses from strategic behavior. The model is calibrated to Denmark's DK1 bidding zone using 2024 day-ahead data and 2030 renewable-capacity and demand projections. The results show that storage reduces imbalances and improves welfare relative to a no-storage case. Concentrated ownership also creates incentives to withhold flexibility, raise prices, and slow the reduction of unmet demand and curtailment. These findings position storage as both a stabilizing resource and a potential source of market power, highlighting the importance of market designs that jointly consider competition, concentration, and capacity deployment in high-RES systems.