Mean-Conditional Value-at-Risk Optimal Energy Storage Operation in the Presence of Transaction Costs

This paper addresses the formulation and solution of an optimal energy storage management problem under risk consideration and transaction costs of trading energy with the power grid. The price evolves as a stochastic process, capable of correctly explaining the seasonality effects as well as the tail fatness and spikiness in its distribution. Transaction costs capture the price impact of the storage operation on the electricity spot price. A risk analysis of an optimal risk neutral deterministic policy as well as the simple myopic policy indicates that the realized operational cost may notably differ from the expected cost by a considerable probability. This difference suggests that we need to consider risk. Using the downside risk measure of conditional value-at-risk, an optimal risk averse conversion and transmission strategy, among the grid, the renewable power generation source, and an energy storage is proposed to fully satisfy the electricity demand and minimize the expected operational cost as well as the risk. Our numerical study using data from NYISO demonstrates the impacts of risk consideration and the transaction cost parameters on the optimal strategy structure, its expected cost, and its risk.