Recent development and advancement in energy storage system (ESS) technologies have made the application of these systems a viable solution to improve the flexibility of power systems. The relatively high investment cost of E is one of the main investors’ challenges. In some system conditions, the economic and technical benefits of the E can encourage the generation companies (GENCOs) to invest in E. On the other hand, the studies show that over-penetration of E can lead to negative impacts on the power system performance. Therefore, it is necessary to determine the optimum storage capacity and encourage the GENCOs to invest as much optimum capacity as possible. This thesis explores the policy of the optimal development of the E. In the first step a new model is proposed to determine the operation strategy of the E beside the conventional power plants. This model is based on a coordinated price based unit commitment and price based storage commitment in the day-ahead market. Since policymakers usually pursue their goals by stimulating investors, studying the development of E from the perspective of investors is necessary. In the next step a new model is proposed to determine the optimal size and technology of the E. In this model the ability of power exchange, bilateral contract and cycling cost are considered. In the final step of this thesis, based on previous studies, the appropriate policy-making for optimal storage development is studied. The proposed model is based on the principles of sustainable development. In the proposed model, the optimal storage capacity is determined by a probabilistic expansion planning strategy. This model is formulated on the basis of the models presented in the first and second steps. Policies are then set to achieve optimal storage capacity. Finally, how investors react to proposed policies is examined. The proposed model in this thesis can be used as a tool by policymakers as well as by investors in the electricity industry to help them make decisions about the optimal expansion of energy storages. Keywords: Policy making, energy storage system, expansion planning, investor, conventional and renewable power plants.
