Financial rights and tracing for energy storage

There has been recent discussion as to whether energy storage should be an active market participant that buys and sells power at wholesale prices or a passive entity like a transmission line. In the latter case, new market mechanisms must be developed to integrate storage into electricity markets. In this paper, we define financial rights for energy storage. As with financial transmission rights, risk-averse market participants can acquire the storage rights to hedge against nodal price volatility resulting from storage congestion. We demonstrate that the rights specify how a system operator can redistribute budget surpluses resulting from storage congestion, as flowgate rights do for transmission congestion. We also derive a tracing rule that enables power flows through transmission lines and storage to be decomposed into present and past nodal contributions.