Strategic Storage and Generation Capacity in Imperfect Electricity Markets: Insights from a Stylized Model

However, when storage is owned by strategic firms that also control generation assets, its operation may deviate from simple arbitrage behavior. This paper examines how market power affects the joint operation of generation and storage in wholesale electricity markets.

We develop a stylized Cournot duopoly model in which firms with heterogeneous generation portfolios simultaneously choose generation output and battery charging and discharging decisions. The model is calibrated using data from the Alberta electricity market. The results show that the presence of storage tends to increase market prices and reduce total output relative to a scenario without storage.