Battery Energy Storage Systems (BESSs) have become an increasingly popular feature of the electrical grid in the California ISO (CAISO) as a means to address the challenges posed by renewable energy variability and escalating peak demand. Due to their ability to reduce peak load demand on traditional generators and extend the benefits of the merit order effect, they have been theorized and claimed to reduce peak electricity prices. The purpose of this study is to test these claims within CAISO and understand what effects BESSs have had on peak electricity prices. Our findings show that there has been a significant decrease in prices after the introduction of BESSs into the grid although we found no significant effects of an increasing utilization of BESSs on peak electricity prices. We conclude that BESS utilization in CAISO has had no effect on peak electricity prices. We are contributing to the literature on the tangible market impacts of BESSs, highlighting the need for further empirical research in this domain.

The Texas ERCOT market is one of the most open, deregulated electricity markets in the world. This open market brought electricity costs down for Texas residents and businesses, creating a much more competitive economic climate. However, these low prices currently generate insufficient revenue for generators to finance construction of new or replacement generation assets. In the instance of combined cycle advanced natural gas, the Independent Market Monitor 2012 annual report estimated that a plant needed to generate 2.5 times as much as revenue it did in 2012 to incent new generation. This author argues that while the gap is still significant, the continuous changes to the ERCOT market since its inception make an historical examination like that used by the IMM less accurate. New market rules such as price caps or changes in fuel markets through new technologies like hydraulic fracturing create a very different valuation gap than a model based on historical activity alone. This analysis attempts to get a more accurate approximation of the gap through the use of publicly traded futures contracts for natural gas and electricity. Electricity futures reflect market expectations of revenue based on current and future market rules. Gas futures reflect price expectations in light of market changes like fracturing, potential LNG exports, and other changes. Financial positions can be maintained in both markets to give a fixed rate of return. Using this method, one can create a very conservative valuation model that still more accurately reflects market sentiment. This thesis starts with a brief history of ERCOT deregulation from the early 2000s to present in order to clarify for the reader the changes that have taken place in the market. It then demonstrates the futures-valuation model using an advanced combined cycle power plant as an example. / text