Figure 2 further illustrates Proposition 1 by showing the profit and welfare maximisers' storage-investment levels, assuming the base parameter values that are given in Table 1.
Figure 4 shows the change in social welfare that is engendered by the profit and welfare maximisers' storage-investment levels relative to the no-storage case.
Figure 6 summarises the profit and welfare maximisers' storage-investment levels with linear marginal generation costs.
At the upper level, we have a single storage investor, i.e., either the profit-maximising merchant or the welfare maximiser.
In particular, we prove that the welfare maximiser invests in more storage capacity than the profit-maximising merchant if the generation sector is relatively uncompetitive.
Next, we show that the profit-maximising merchant may be induced to invest in the same level of storage capacity as that of the welfare maximiser via a ramping charge on generation.
The system is assumed to have a single storage operator, which is either a profit-maximising merchant or a welfare maximiser. The storage operator must invest in storage capacity if it wishes to use storage (i.e., we assume that the system begins with no storage installed).
We, hereafter, refer to [k.sup.*.sub.[product]] as the 'profit maximiser's storage-investment level.' The requirement that [A.sub.2] - [FA.sub.1] - BN * (F - 1) [greater than or equal to] 0 intuitively means that the price difference between the on- and off-peak periods has to be sufficiently high to justify the cost of storage investment.
We analyse the case of a welfare-maximising storage operator in the same way that we do a profit maximiser. That is, we first examine its operating decisions and then determine its investment level.
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