I investigate the incentives for investing and operating grid-scale energy storage in electricity markets and the need for policies to complement investments with renewables. I develop a new dynamic equilibrium framework that allows for storage’s price impact and incumbent best responses to storage’s production and apply it to study the South Australian Electricity Market. Results indicate ignoring storage’s price impact leads to biased estimates; although privately operated storage entry is not profitable, it increases consumer surplus and reduces emissions, ownership has a significant effect on storage’s impact, and storage substitutes or complements renewables under different generation mixes.
