An optimization model was created to optimize the input power capacity and storage capacity relative to the output power capacity of a compressed air energy storage (CAES) facility in the Electric Reliability Council of Texas (ERCOT) grid. Historical electricity and non-spinning reserve prices were used to calculate the economic feasibility of CAES in each of the zones in ERCOT. The analysis found that with perfect knowledge of future prices a CAES facility would be economically attractive over the period of years considered, and the non-spinning reserve ancillary service market provided a substantial contribution to the overall revenue of the facility. Optimal input power capacity for the entire period of 2002 through 2010 was found to be about one-quarter of the output capacity in the Houston, South, and North zones in ERCOT and one-half the output power capacity in the West zone in ERCOT. Optimal storage capacity was found to be about 17 hours in the Houston, South, and North zones and 31 hours in the West zone. Optimal values for individual years varied significantly, as did revenues. The negative electricity prices that have occurred historically in the West zone are the consequence of wind generators and lack of transmission capacity to export electricity; this effect gives CAES greater opportunity to perform price arbitrage and improves the economics of such a facility.

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