Carnegie Mellon Electricity Industry Center Working Paper CEIC-06-04 www.cmu.edu/electricity Walawalkar, Apt, and Mancini Economics of electric energy storage 1 Economics of electric energy storage for energy arbitrage and regulation in New York Rahul Walawalkar a,b , Jay Apt a, *, Rick Mancini b a Carnegie Mellon Electricity Industry Center, Department of Engineering & Public Policy and Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213, USA b Customized Energy Solutions, 100 N. 17 th Street, Philadelphia, PA 19103, USA Abstract Unlike markets for storable commodities, electricity markets depend on the real-time balance of supply and demand. Although much of the present-day grid operates effectively without storage, cost-effective ways of storing electrical energy can help make the grid more efficient and reliable. We investigate the economics of two emerging electric energy storage (EES) technologies: sodium sulfur batteries and flywheel energy storage systems in New York state’s electricity market. The analysis indicates that there is a strong economic case for EES installations in the New York City region for applications such as energy arbitrage, and that significant opportunities exist throughout New York state for regulation services. Benefits from deferral of system upgrades may be important in the decision to deploy EES. Market barriers currently make it difficult for energy-limited EES such as flywheels to receive revenue for voltage regulation. Charging efficiency is more important to the economics of EES in a competitive electricity market than has generally been recognized. Keywords: electric energy storage; electricity markets; restructuring * Corresponding author. Tel: +1-4122683003; fax: +1-4122687357. E-mail addresses: walawalkar@cmu.edu (R. Walawalkar), apt@cmu.edu (J. Apt), rmancini@ces-ltd.com (R. Mancini) . .