Battery Storage Energy Arbitrage Under Stochastic Dominance Constraints: A New Benchmark Selection Approach

Abstract

This paper presents an energy arbitrage strategy of a lithium-ion Battery Storage System (BSS) in sequential Day-ahead and Intraday (DA+INT) markets, considering its Cycle Aging Cost (CAC). One of the critical queries of the BSS in such problems is how to tackle the risk of uncertain prices in both market floors. Towards this end, a financial risk management method, i.e., Second-Order Stochastic Dominance Constraints (SOSDCs), is used to control the risk of uncertain market prices. Despite the promising performance of the SOSDCs over a broad range of decision-making problems, the primary challenge for decision-makers taking advantage of this approach is the selection of the minimum profit threshold. To effectively overcome this obstacle, this paper proposes a new benchmark selection approach based on a fuzzy decision-making manner over in-sample and out-of-sample analyses. The idea behind considering both in-sample and out-of-sample studies lies in an unforeseen change of the results by setting various benchmarks in SOSDCs. In this regard, to precisely formulate this problem, with an eye on the battery CAC, a linear two-stage stochastic framework is suggested. The numerical results show the applicability of the developed approach in benchmark selection for the SOSDCs.