With a rapid decline in cost of battery energy storage, a battery system plays an increasingly important role in managing imbalance between ordering and consumption in the electricity wholesale market. We develop an innovative electricity demand forecasting framework for calculating the optimal battery capacity that maximizes the profit of an electricity retailer. The framework allows different costs associated with over-and under-prediction errors, and two insensitive parameters to capture the battery residual capacity and remaining storage space. An application to Australia National Electricity Market in New South Wales shows that the use of a battery system with the optimal capacity can save up to AUD $65 millions annually under reasonable battery unit cost assumptions.
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