Economic impact of pumped storage power plant on social welfare of electricity market

Pumped storage hydroelectric plants are attractive in competitive electricity markets because of their operational flexibility and ability to provide rapid response to change in spot price of electricity. Operating pumped storage plant affects the consumer and producer surplus of the individual market and hence leads to significant changes in energy prices. This paper investigates the impact of pumped storage energy trading on the social welfare of electricity market. A theoretical analysis and intuitive explanation are presented and numerical case study is also illustrated to validate the analytical results developed. Energy trading by pumped storage increases the overall social welfare of the market, when both storing and releasing energy. Further, the implications of pumped storage energy trade are producers benefit more during storage and consumers benefit more during release of stored energy.

► Operating pumped storage affects consumer and producer surplus of the energy market.
► Investigation of the impact of pumped storage energy trading on market welfare.
► Energy trading by pumped storage increases the overall social welfare of markets.
► Implications for consumers and generators during pumping and generating.
► Case study is presented to validate the analytical results developed.