Energy Conversion and Management 50 (2009) 11721179

Contents lists available at ScienceDirect

Energy Conversion and Management

jou rnal h om ep ag e : ww w.e lse vi e r.c o m / l o c a t e / e n c o n m a n

The role of compressed air energy storage (CAES) in future sustainable

energy systems
Henrik Lund *, Georges Salgi
Department of Development and Planning, Aalborg University, Fibigerstraede 13, DK-9220, Denmark

a r t i c l e

i n f o

Article history:
Received 21 November 2007
Received in revised form 4 July
2008 Accepted 27 January 2009
Available online 5 March 2009
Keywords:
CAES
Compressed air energy
storage Energy system
analysis Electricity market
optimisation

a b s t r a c t
Future sustainable energy systems call for the introduction of integrated storage
technologies. One of these technologies is compressed air energy storage (CAES). In Denmark
at present, wind power meets 20% and combined heat and power production (CHP) meets 50%
of the electricity demand. Based on these gures, the paper assesses the value of integrating
CAES into future sustainable energy systems with even higher shares of uctuating renewable
energy sources. The evaluation is made on the basis of detailed energy system analyses in
which the supply of complete national energy systems is calculated hour by hour in relation to
the demands during a year. The Danish case is evaluated in a system-economic per- spective
by comparing the economic benets achieved by improving the integration of wind power to
the costs of the CAES technology. The result is compared to various other storage options.
Furthermore, a business-economic evaluation is done by calculating the potential income of the
CAES technology from both spot markets and regulating power markets. The evaluation
includes both historical hour by hour prices during a 7-year period on the Nordic Nord Pool
market as well as expected future price variations. The conclusion is that even in energy
systems with very high shares of wind power and CHP, neither the historical nor the expected
future price variations on the spot market alone can justify the investment in CAES systems.
Other storage technology options are signicantly more feasible. CAES may operate both on
the spot market and the regulating power market, which indicates potential feasibility.
However, such strategy is highly risky because of the small extent of the regulating power
market and if CAES is to become feasible it will depend on incomes from auxiliary services.
2009 Elsevier Ltd. All rights
reserved.

1. Introduction
Substantiated by issues of energy security, climate
change, as well as uctuating and rising oil prices, many
countries around the world lead an energy policy focussing
on energy efciency and increasing the share of renewable
energy sources (RES) [1,2]. In some countries and regions,
e.g. in the EU, these policies also in- volve increasing the
share of combined heat and power (CHP) [3]. Such energy
policies lead to the challenge of balancing electricity supply
and demand. With a wind power production meeting 20%
and a CHP share meeting 50% of the electricity demand,
Denmark is one of the front runners in facing such problems.
So far, Denmark has already faced excess electricity
production problems. Various technological options have
been
analysed and several measures have been
implemented including changes in the regulation of distributed CHP plants [4,5]. The different technological
options in question include electric boilers and heat pumps
[6,7], exible de- mands, electricity for transportation [8],
reorganisation of energy

* Corresponding author. Tel.: +45 9635 8309; fax: +45 9815 3788.
E-mail address: Lund@plan.aau.dk (H. Lund).

conversion in relation to waste treatment [9] and various

energy storage options [10].
On a utility scale, compressed air energy storage (CAES)
is one of the technologies with the highest economic
feasibility
which may contribute to creating a exible
energy system with a better utilisation of uctuating
renewable energy sources [11,12]. CAES is a modication of
the basic gas turbine (GT) technology, in which low-cost
electricity is used for storing compressed air in an underground cavern. The air is then heated and expanded in a
gas tur- bine in order to produce electricity during peak
demand hours. As it derives from GT technology, CAES is
readily available and reli- able. Two plants have been
constructed in the world so far; one in Germany and one in
the USA of 390 MW and 110 MW turbine capacities,
respectively. Given the limited pumped hydro energy
storage potential of CAES, early literature focused on the
technical description of CAES plant designs for load levelling
and fuel saving applications in combination with coal and
nuclear base load power plants [1316]. With the
development of renewable energy, CAES has increasingly
been analysed as a method of improving the inte- gration of
uctuating wind power into the electricity supply. Bul- lough
et al. analysed the technical development and economic

feasibility of
system in

an

advanced

adiabatic

CAES

(AA-CAES)

0196-8904/$ - see front matter 2009 Elsevier Ltd. All rights reserved.
doi:10.1016/j.enconman.2009.01.032

H. Lund, G. Salgi / Energy Conversion and Management 50

(2009) 11721179

various European countries with the EU target of 20%

renewable energy by 2020 as a basis [17]. Denholm suggests
a fully renewable base load power plant using a combination
of wind power, CAES, and biofuels [18]. A hybrid wind/CAES
system was also proposed by Cavallo as a compensation for
the intermittency of wind power [19]. Greenblatt et al.
compare the marginal production cost of a base load
wind/CAES to coal and wind/gas turbine systems and
conclude that CAES can be highly economically competitive,
espe- cially if externality costs of GHG emissions are
included. The GHG perspective is also presented in Denholm
et al. 2004 [20], where CAES is compared to other
electricity storage options seen from a life cycle perspective
in relation to greenhouse gas emissions.
The literature described focuses on specic CAES plant
applica- tions (both alone and in combination with
another technology such as coal or wind). This ignores the
system perspective in which combined technologies
interact with each other. Salgi and Lund perform a
technical system analysis with an increased wind power
penetration in Denmark [21]. The mentioned study,
however, does not take into account the economic
feasibility of a CAES plant. Swider presents a stochastic
model for analysing the economic competitiveness of
CAES in a system with growing wind power penetration
[22]. The study concludes that CAES can be economi- cally
competitive with other technologies in a system characterised by the phasing out of nuclear power. While
stressing the importance of exible technologies, the
study does not compare CAES to other such available
technologies.
This paper uses a deterministic model to analyse the
system- economic potential of a CAES plant in the Danish
electricity system in comparison with other exible
technologies. By use of detailed energy statistics,
including hour by hour simulations, this paper evaluates
the system-economic feasibility of CAES plants in the
present and future Danish energy system, and the results
are com- pared to similar results of other alternatives
including heat pumps and hydrogen storages. Moreover,
the business-economic poten- tials of CAES plants on the
Nordic electricity markets are analysed, including both the
spot market and the regulating power market.

11

2. Methodology
The evaluation of CAES plants in relation to the system
integra- tion of wind power requires a combination of
detailed hour by hour simulations and feasibility studies.
Such combination can be achieved by using the
EnergyPLAN computer model, which has been applied here
[23,24]. The EnergyPLAN model is a general en- ergy system
analysis tool designed for analysing regional or na- tional
energy systems. It is an inputoutput model, which uses
data on capacities and efciencies of the energy systems
conver- sion units as well as the availability of fuels and
renewable energy inputs. Hour by hour it calculates how the
electricity and heat de- mands of the complete system will
be met under the given con- straints and regulation
strategies. In such analyses, the model refers to a database
of wind power hour distributions based on ac- tual historical
productions from Danish wind turbines. Fig. 1 gives an
impression of the functioning of the model. It is seen how it
fo- cuses on the electrical system but also incorporates
other parts of the system which interact with it.
As a result of the calculation, detailed knowledge is
created on the production of the different units. From this,
fuel consumption and xed and variable operation costs can
be calculated and, sub- sequently, the system-economic
costs and CO2 emissions caused by meeting the demands
of society can be found. The model has previously been
used in a number of energy system analysis activ- ities,
including expert committee work for the Danish Authorities
[25] and the design of 100% renewable energy systems
[26]. The present version 7.0 of the EnergyPLAN model
including documen- tation can be downloaded for free from
the following home page: www.EnergyPLAN.eu.
In general, the EnergyPLAN model has a focus on
system analy- sis, i.e. the analysis of national or regional
energy systems. How- ever, the model also facilitates the
business-economic analysis of individual plants in the case
of electricity storage systems with a special focus on CAES
plants. The methodology used for identifying the optimal
operation strategy is carefully described in [24,27]. The

11

H. Lund, G. Salgi / Energy Conversion and Management 50

(2009) 11721179

Fig. 1. The EnergyPLAN energy system analysis model [23,24].

Fig. 2. CAES plant technical inputs in the EnergyPLAN energy system analysis model.

methodology has been tested against two independent

computer tools and methodologies, and all three tools
have identied the same operation strategy as the
optimal one seen in relation to a business-economic
optimisation of the CAES plant.
The technical description of CAES plants in the
simulations is simple and assumes isentropic efciencies of
the individual com- pressor and turbine. The storage is
assumed to be airtight with a constant wall temperature of
35 C [28]. As shown in Fig. 2, a CAES plant is identied by
the following technical input data:
Turbine and Compressor capacities in MW and storage
capacity in GWh.
Compressor efciency (gc) dened as energy storage
input
divided by power input to the compressor.
Turbine storage efciency (gt) dened as power output
per unit storage energy input.
The fuel ratio (gratio) dened as fuel input to the turbine per
elec- tricity output.

In the other regulation strategy, all individual plants are

oper- ated on the international electricity market on the
basis of a com- parison of short-term marginal production
costs and market price. In such situation, the CAES plant
seeks to optimise business-eco- nomic prots on the market.
For a detailed description of the opti- misation procedures,
please refer to [24,27].
3. Technical and economic assumptions
A state-of-the-art CAES plant with an electric turbine
output of 360 MW has been dened for the analysis as
described in Table 1. The investment costs of 182 million
EUR with a lifetime of
30 years and a real interest rate of 3% can be converted
into an an- nual payment of 9.3 million EUR. Together with
the xed operation cost of 4.7 million the total annual
cost can be identied as 14
Table 2
Technical and economic data of alternatives to CAES plants [10].

The EnergyPLAN model can be used for system analysis

of na- tional energy systems using two different regulation
strategies.
In the rst strategy, all units are operated in order to
minimise

Technology

Description

Annual
investment and
xed operation
costs (interest
3%)

excess electricity production and fuel consumption. In such

strat- egy, the system will exchange electricity on the
external electricity market only if such export cannot be
avoided. The regulation of
CAES plants in such strategy is simple: The CAES plant
seeks to consume electricity in situations of excess
production and seeks to produce electricity at times when
such production can replace power plants with no CHP
production.

CAES
MW

360 MW turbine, 216

14 million EUR/year

compressor, 1478 MWh

storage, lifetime = 30
years
EB, electric boiler in CHP
plants
2.67

HP, Large-scale heat pumps in CHP plants

Table 1
Technical and economic data of the CAES plant [27].
Compressor

Capacity
MW Efciency

216
0.6843

Storage

Capacity

1478 MWh

Turbine

Capacity
MW Efciency
Fuel Ratio

360
2.4357
1.1556

Investment

Costs

Operation costs

182
Million
EUR
Lifetime
30
years Interest rate (real)
3%
Fixed costs

4.7
Million
EUR/year
Variable compressor 2.27
EUR/MWh Variable turbine

ELC, electrolysers to replace Ngas with hydrogen in

CHP plants

H2 electrolysers, H2 storage and fuel cells

1300 MW electric boiler

14 million EUR/year
0.13 million EUR/MW Lifetime = 20 years
Operation costs = 12%

360 GWh H2 storage

0
.
0
5

85 MW-e heat pump

14 million EUR/year
2.1 million EUR/MW-e COP = 3.5
Lifetime = 20 years Operation costs = 1%
535 MW electrolysers
14 million EUR/year
0.25 million EUR/MW-e Lifetime = 20 years
Operation costs = 3%
Transmission payment

Availability payment on the

regulating
power
market

Consumptio
n
(compresso
r)
Production (turbine)
EUR/MWh

m
i
l
l
2.00
EUR/MWh

0.53

Upward (monthly)

3330 EUR/MW

Downwar
d
(monthly)

1070
EUR/MW

ion EUR/GWh Lifetime =

25 years Operation costs
= 0%
Efciency = 0.72 H2 + 0.1 Heat
180 MW electrolysers
14 million
EUR/year 120 GWh H2 storage
90 MW Fuel cell
0.8 million EUR/MW-e

Lifetime = 20 years
Operation costs = 6%

Efciencies:
Electrolyser + storage: 0.72
Fuel cell: 0.56
Total: 0.4

Nord Pool (West Denmark) Spot Market Prices Year 2004

90

EUR/MWh

80
70
60
50
40
30
20
10
0
1

344 687 1030 1373 1716 2059 2402 2745 3088 3431 3774 4117 4460 4803 5146 5489 5832 6175 6518 6861 7204 7547 7890 8233
8576

Hours
Fig. 3. Nord Pool spot market prices in year 2004.

million EUR plus variable fuel and operation costs. In the

system- economic evaluation, such costs have been
compared to the vari- able operation and fuel cost savings
achieved in the energy system, including better use of
excess power from wind and CHP. More- over, the CAES
technology has been compared to a number of alter- native
options as listed in Table 2. The costs of alternative options
are based on [10] and have here been adjusted so that all
technol- ogies have the same xed annual costs of 14 million
EUR, which al- lows for a comparison of the net operational
income.
With regard to electricity market prices in
the
business-eco- nomic evaluation, historical prices from the
Nordic Nord Pool mar- ket in the period from 2000 to 2006
have been applied and combined with expectations to prices
levels in 2030. In Fig. 3, the price variation of the spot
market prices in year 2000 is shown in which the average
price was 122 DKK/MWh equivalent to 16 EUR/MWh. In
Table 3, the average price levels are shown to- gether with
natural gas prices for the same years. The prices do not
include taxes or CO2 payments. The expected prices for
year 2030 are based on the forecast of the Danish Energy
Authorities (2007) according to which natural gas prices
are expected to in- crease to 6.5 EUR/GJ and the average
Nord Pool price to 54 EUR/ MWh, both including the effects
of introducing a CO2 market with an expected price of 20
EUR/ton.
The hour by hour price variations of the expected spot
market prices in 2030 have been designed in the following
way: CO2 pay- ment has been dened as a xed price while
the rest has been dis- tributed using the Nord Pool price
variations of 2005, which by the system operator is
considered a typical year. A sensitivity analysis has been
done using the German EEX market price variations of
2005. The German market is dominated mainly by coal-red
steam turbines and it has a more volatile structure than the
Nord Pool market, which is dominated by Norwegian Hydro
power.

Table 3
Natural gas and electricity market prices.

4. Results of the regional energy system-economic

analysis
The purpose of the system-economic evaluation is to
examine the feasibility of CAES plants when applying load
levelling in order to improve the integration of wind power
into regional or national energy systems. Part of such
analysis is to compare CAES plants to other technologies
with the same aim. In its nature, such analysis of course
depends on the energy system and especially on the
share of wind power and other production units with
limitations or restrictions, such as e.g. distributed CHP
plants. Here, the start- ing point for the evaluation is a
Business as usual extension of the present Danish
energy system into year 2030 as conducted by the
Danish Energy Authorities [8]. By use of the EnergyPLAN
model, such a system has been analysed, applying
different shares of wind power and leading to low or high
shares of excess electric- ity production.
First, an innite CAES plant has been added to the
system. The analysis showed that when the wind power
share was up to 59% (wind production compared to
electricity demand), the innite CAES plant was able to
remove all excess electricity production and use all
stored energy to replace the power production of nonCHP power plants. With a wind power share above 59%,
even the innite CAES plant was not able to utilise all
excess production for the simple reason that the power
plants did not produce en- ough power which could be
replaced by the turbine production. Similarly, the innite
CAES plant is able to replace all non-CHP power production
in the system when the wind power share is down to
59%. Below 59%, the lack of excess electricity production
will set the limit for lling the storage. In other words: In
systems with low wind power shares, the lack of excess
power sets the lim- itations, and in systems with high wind
power shares, the lack of non-CHP power production sets
the limitations to a full utilisation of CAES plants. In the
Danish system as expected for year 2030, the optimal use
of CAES is found to be a wind power share of 59%.
In the next analysis, the innite CAES plant was replaced
by the 360 MW plant described above in the optimal
situation of 59% wind power. The results showed that the
limited capacity of the specic plant signicantly reduced
the inuence of the CAES plant. The reason for this is
illustrated in Fig. 4. The diagram shows the duration curves
of excess electricity (to the right) and non-CHP power
production (to the left) and compares these to the turbine
and compressor consumption and production, respectively.

Year

Natural gas price (EUR/GJ)

2000 2.95
2001 3.85
2002 3.22
2003 3.38
2004 3.27
As seen
from
2005
4.45
2006 5.69
marginal.
2030
a
6.49
a

the diagram,

Average electricity market price

(EUR/MWh)
16.3
23.6
25.2
33.3
28.5
the
36.9inuence of the CAES plant
43.9
54.1
a

Includes the inuence from an expected CO2 trading price of 20

EUR/ton.

is

The capacity of the high share of excess production is much

higher
than that of the compressor and, consequently, most of the
excess
production cannot be absorbed by the compressor. The
problem is

Duration Curves for Danish energy system year 2030 with 59 percent wind
power CAES plant: 360 MW turbine, 216 MW compressor, 1478 MWh
storage

6000
5000

MW

4000
3000
2000

Pow er
plant

Turbine

Compressor

Excess

1000

0
1

477 953 1429 1905 2381 2857 3333 3809 4285 4761 5237 5713 6189 6665 7141 7617 8093 8569

hours

Million EUR/year

Fig. 4. Duration curves of power plant and excess electricity productions compared to CAES turbine and compressor contributions.

Operational benefits of a CAES plant in the Danish 2030 energy system

15

40$/barr

10

68$/barr
96$/barr

0
0 EUR/MWh

13 EUR/MWh

27EUR/M/Wh

-5
Fig. 5. Net operational income of a CAES plant in the Danish year 2030 energy system compared to the annual investment and xed operation cost of 14
million EUR/year (shown by the dotted line).

the same with regard to the power production and the

turbine capacity. Also the storage capacity sets a limitation,
which can be identied by conducting the same analysis of
a CAES plant with innite storage. However, even in such a
situation, the inuence of the CAES plant is marginal.
Even though the inuence with regard to utilising excess
pro- duction is marginal the CAES plant itself may be feasible
to the sys- tem. Consequently, the feasibility has been
assessed by identifying the value of the fuel saved in the
system. The results are shown in Fig. 5 in terms of annual net
operational income of the CAES plant. Such net income has
been calculated as the difference between, on the one hand,
the values of variable operation and excess electric- ity
costs and, on the other, the fuel and variable operation
costs saved in the system. Three different sets of fuel prices
have been used, as expressed by the three different oil
prices of 40, 68 and 96 US$/barrel. If the excess electricity
produced is not utilised in CAES systems, one alternative is
to sell it on the Nordic electricity market. In Fig. 5, three
different selling prices have been analysed, namely 0, 13 and
27 EUR/MWh.
In Fig. 5, the annual net operational income is compared
to the investment and xed operational cost per year of 14
million EUR (marked by a dotted line). As shown, variations
in the fuel price mean little to the results. This is due to the
fact that CAES plants burn natural gas and consequently, fuel
savings at the power plants are counterbalanced by fuel
costs at the CAES plant. The price of excess electricity

production is important. Meanwhile, even if

power produced is free, annual net-earnings

the

excess

are far from the level of annual investment and xed

operation costs.
In Fig. 6, the system-economic feasibility of CAES
plants is com- pared to other technologies which may
also utilise excess electric- ity production and contribute
to a better system integration of wind power. All
alternative technologies have been designed in such way
that they all have the same annual investment and xed
operation costs as explained above, namely 14 million
EUR/year. Such adjustment has been made in order to
compare the different options solely in terms of their
operational benets. The calculations in Fig. 6 apply an
oil price of 68 US$/barrel and an ex- cess electricity price
of 13 EUR/MWh. However, only minor changes are
achieved by applying other price levels, apart from the

electric boiler, which is especially sensitive to the price of

ex- cess electricity.
It can be seen from Fig. 6 that CAES plants are not
feasible and other options are signicantly more attractive.
It must, however, be emphasised that such analysis solely
includes the benets of better operation including
integration of wind power. In one important aspect, the
technologies are not comparable; the CAES and the
hydrogen/fuel cell technology add production capacities to
the system, which the other options do not.
Consequently, CAES may replace power plants or reduce
the need for back-up capacity and thereby save
investment costs in the system. A sensitivity analysis has
been made in which such saved investments costs have
been included up to one million EUR/MW of steam turbines
with a lifetime of 30 years. In such

System operational savings (excess electricity price of 13 EUR/MWh)

million EUR/year

(All technologies have annual costs of 14 Million EUR/year)

50
40
30
20
10
0

Fig. 6. Savings of CAES compared to other alternative investments all with the same annual investment and xed operation costs of 14 million EUR/year
(marked by the dotted line).

analysis, the CAES plant becomes feasible, even though it

can still not compete with some of the other technologies.
The conclusion on the system-economic analyses is that
CAES plants cannot alone solve the problems of excess
electricity pro- duction and other options are signicantly
more attractive. How- ever, if CAES plants can save
investments in power plant capacities in the system, the
CAES technology has the potential of being feasible to the
system.
5. Results of business-economic analysis
The purpose of the business-economic analysis is to
examine the feasibility of CAES plants on historical and
expected future electricity markets. First, the feasibility of
the CAES plant described in Table 1 has been analysed
using both historical market prices and expected future
prices. The results are shown in Fig. 7. Both theoretically
optimal and practically obtainable net operational incomes have been identied and showed in the diagram.
Again the net operational income is dened as the income
from selling elec- tricity subtracting the variable costs of
fuel, operation and buying of electricity. It can be seen that
the annual net operational income differs very much from
one year to another. Hence, the net opera- tional income in
year 2004 is below 2 million EUR, while in 2003 and 2005,
it is above 9 million EUR. The huge variations between the
years are due to the variations in the average electricity
market price and the natural gas price. Those two very
important factors

do not go up and down together and, consequently, high

prots can be made in years with high electricity prices
and low natural gas prices. In average, the net operational
income is 5.6 million/ year and it is thus far below the
annual investment and xed oper- ational costs of 14
million/year.
With the future prices expected for year 2030, a better
feasibil- ity may be achieved. This is due to the expected
relatively high electricity market prices in combination with
expected moderate increases in the natural gas price.
Especially for the volatile Ger- man EEX price uctuations,
the plant seems feasible. However, it must be emphasised
that the feasibility is relatively small and the analysis is
very sensitive to e.g. increases in the natural gas price.
Since the feasibility on the spot market is low and
sensitive, the potential income on the regulating power
market has been calcu- lated. In the system of Western
Denmark, the CAES plant can trade on the regulating power
market in two ways. Either it can bid hour by hour. In such
case, it is only required to deliver if a bid is made. Or it can
make a stand-by contract for a month. In such case, the
plant commits itself to delivering whenever called upon or a
pen- alty has to be paid. Both types of involving the CAES
plant into the regulating power market have been analysed,
but in both cases, the likely income cannot justify the costs.
It appears from the two analyses that neither the spot
market nor the regulating power market alone can make the
CAES plant feasible. In order to achieve feasibility, the CAES
plant has to oper-

Expenditures
Income (optainable)
Indcome (Optimal)

Million EUR/year

Million EUR/year

20

15

10

20

15

10

0
2000

2001
2006

2002

2003

2004

2005

2000-2006

2030 (NP)

2030 (EEX)

Fig. 7. Annual net operational income and xed expenditures when operating on the electricity spot market.

Expenditures
Income (excl. Monthly)

Million EUR/year

Million EUR/year

Income (Incl. monthly)

20

15

10

15

10

20

2000

2001
2006

2002

2003

2004

2005

2000-2006

2030 (NP)

Fig. 8. Annual net operational income and xed expenditures when operating on the electricity spot market in combination with the regulating power
market.

ate on both markets in such a way that earnings can be

combined without violating the requirements of the
regulating power mar- ket. One such combined strategy
has been identied as follows: The turbine operates solely
on the regulating power market and asks for xed monthly
availability payments, while the compressor operates solely
on the spot market. The compressor in operated in such way
that the storage is never empty, which again makes the
turbine available at all times.
The results of such a combined strategy are shown in Fig.
8. As can be seen, the CAES plant becomes feasible in all
years in this strategy. Both the incomes with and without
the monthly avail- ability payments from the turbine are
shown, and it can be seen how important this contribution
is. Consequently, it must be emphasised that the feasibility
of the CAES plant strongly depends on the monthly payment
from the regulating power market. This situation makes the
investment highly risky since such payment is only given to
a small part of the capacity and it is also likely to change in
price during the lifetime of the CAES plant.
6. Conclusion
The evaluation of CAES plants in future sustainable
energy sys- tems with a high share of uctuating
renewable energy sources has to include detailed hour by
hour simulations. By use of the Energy- PLAN computer
model, such simulations have been applied to both
system-economic and business-economic evaluations of
CAES in the Danish electricity supply.
The purpose of the system-economic evaluation has
been to examine the feasibility of CAES plants in the load
levelling applied to improve the integration of wind power
into the national elec- tricity supply. The conclusion of the
system-economic analysis is that CAES plants cannot
alone solve the problems of excess elec- tricity production
and other options are signicantly more attrac- tive.
However, if CAES plants can save investments in power
plant capacities in the system, the CAES technology may
become feasible to the system.
The purpose of the business-economic analysis is to
examine the feasibility of CAES plants on historical and
expected future electricity markets. The evaluation
includes both historical hour by hour prices during a 7-year
period on the Nordic Nord Pool mar- ket as well as
expected future price variations. Moreover, both the spot
market and the regulating power market have been
included. The conclusion is that if CAES plants operate
both on the spot mar- ket and the regulating power market
they may be feasible. How- ever, it must be emphasised

that the feasibility strongly depends on the monthly

payment from the regulating power market. This situation
makes the investment highly risky since such payment

is only given to a small part of the capacity and it is also

likely to change in price during the lifetime of the CAES plant.
Acknowledgements
The work presented in this paper is the result of a
research pro- ject carried out in co-operation with the
Technical University of Denmark (DTU) partly nanced by
the Danish transmission system operator Energinet.dk.
Moreover, the companies DONG Energy and Energy and
Environmental Data (EMD) have participated in the
project. Especially we wish to thank Brian Elmegaard from
DTU, Axel Hauge Pedersen from DONG Energy, Anders N.
Andersen from EMD and Henning Parbo and Kim Behnke
from Energinet.dk for sharing information and contributing
with helpful comments.
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