Optimal operation of energy storage for arbitrage and ancillary service capacity: The infinite horizon approach

This paper considers the co-optimization of the operations of a grid scale energy storage resource (ESR) for both energy price arbitrage and sales of secondary frequency regulation capacity. We investigate the application of the infinite horizon Markov decision problem (MDP) framework to this problem. We formulate the ESR´s decision optimization problem as an infinite horizon, average reward MDP. This problem is a proof-of-principle which considers the automatic generation control signal as the only random parameter. Example MDPs are solved using the policy iteration algorithm. The optimal operating policies and gains are described. Results show that the value of an ESR can be increased substantially by using it for more than one purpose simultaneously.