NEW YORK, NY — As battery storage surges across the U.S. electric grid in response to growing renewable energy use and rising demand, a new Columbia Business School study finds that privately owned batteries can lower system cost for the grid almost as well as a central planner could, even as these big batteries exert market power to influence prices and energy generation in their favor.
In “Battery Operations in Electricity Markets: Strategic Behavior and Distortions,” Columbia Business School Professors Omar Besbes and Santiago Balseiro, along with doctoral student Jerry Anunrojwong ‘25 and Bolun Xu, Assistant Professor, Columbia University’s Fu Foundation School of Engineering and Applied Science, examine how batteries behave in two types of electricity markets: one where a system operator centrally manages batteries to reduce costs for the grid, and another where privately owned batteries operate independently to maximize their profits. The study focuses on how these market-driven batteries, which are increasingly common in deregulated electricity markets, decide when and how much power to discharge, and how the profit motives make them behave differently from the social optimum. The researchers found that while private batteries lower overall costs compared to systems with no storage, they also tend to act strategically—delaying or withholding power to take advantage of higher prices. These decisions can make electricity markets less efficient than if battery use were centrally coordinated.
“Electricity markets are susceptible to the exercise of market power because demand and supply must be exactly equal at every location in the grid at any given time to ensure we all have power when we need it,” said Santiago Balseiro, Associate Professor of Business.
To quantify battery strategy and its effect on system cost, Anunrojwong, Balseiro, Besbes, and Xu introduce a model of electricity markets that includes energy from renewables (such as solar) as well as conventional power plants. Using real data from Los Angeles and Houston—two of the largest and most rapidly evolving electricity markets in the U.S.—they tested how battery decisions impact market outcomes. They found that even though decentralized batteries do not perform as well as the ideal case of centralized batteries, they can get pretty close. In particular, they prove that incentive misalignment from decentralization is limited in the worst case, and when many common market features are present, such as competition between batteries and limited battery capacity, the misalignment decreases even further. These results suggest that, at this time when the battery adoption is still at an early stage, the regulator's top priority should be to encourage more battery participation in the market to increase total battery capacity and competition—and that market power mitigation efforts should come later, once the battery market is more established.
Additional Findings:
- Private batteries delay some of their discharge: Private batteries often “withhold” capacity in the day-ahead market—where electricity is scheduled a day in advance—and instead wait to participate in the more volatile real-time market. This makes day-ahead planning more difficult and expensive.
- Competition reduces distortions: The researchers found that adding more competing battery operators significantly reduces inefficiencies and aligns profit incentives with public benefits.
- Some regulations may backfire: Market power mitigation policies—like restricting when batteries can sell—can unintentionally increase total system costs by reducing flexibility or discouraging participation.
“Our findings make one thing clear: batteries, even when used strategically, deliver net benefits to the grid—and those gains will only grow as storage scales and markets mature,” said Omar Besbes, the Vikram S. Pandit Professor of Business. “This opens up important new questions about how to design smarter regulation, drive better investment decisions, and position businesses to lead in the future of energy.”
To learn more about the cutting-edge research being conducted, please visit the Columbia Business School.
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