An important function of aggregators is to enable the participation of smallenergy storage units in electricity markets. This paper studies two generallyoverlooked aspects related to aggregators of energy storage: i) therelationship between the aggregator and its constituent storage units and ii)the aggregator's effect on system welfare. Regarding i), we show thatshort-term outcomes can be Pareto-inefficient: all players could be better-off.In practice, however, aggregators and storage units are likely to engage inlong rather than short-term relationships. Using Nash Bargaining Theory, weshow that aggregators and storage units are likely to cooperate in thelong-term. A rigorous understanding of the aggregator-storage unit relationshipis fundamental to model the aggregator's participation in the market. Regardingii), we first show that a profit-seeking energy storage aggregator is alwaysbeneficial to the system when compared to a system without storage, regardlessof size or market power the aggregator may have. However, due to market power,a monopolist aggregator may act in a socially suboptimal manner. We propose apricing scheme designed to mitigate market power abuse by the aggregator. Thispricing scheme has several important characteristics: its formulation requiresno private information, it incentivizes a rational aggregator to behave in asocially optimal manner, and allows for regulation of the aggregator's profit.
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