Abstract
A linear complementarity model is developed and presented for two different electricity market designs comprising an energy-only as well as a capacity market. In addition, storage units are implemented, assessing the impact of the market design on these units. Results of a case study for northern Europe show that the availability of storage units can have a significant impact on the optimal generation mix to reduce the need for mid-merit and peaking thermal generation capacity. Given a capacity market, the derating of storage technologies creates a bias towards conventional thermal units and has a significant negative impact on the profitability and hence incentive to invest in energy storage units. Furthermore, due to the vastly different cost characteristics and round-cycle efficiencies, it is found that batteries and pumped hydro energy storage complement each other in the power system instead of reducing each other’s business opportunities.