  Ambitious renewable portfolio standards motivate the incorporation of energy
storage resources (ESR) as sources of flexibility. While the United States
government aims to promote ESR participation in electricity markets, work on
market designs for properly remunerating ESRs is still lacking. In this paper,
we propose a new energy market clearing framework that incorporates ESR
systems. The new market design is computationally attractive in that it avoids
mixed-integer formulations and formulations with complementarity constraints.
Moreover, compared to previous market designs, our market decomposes the
operations of ESRs using the concept of virtual links, which capture the
transfer of energy across time. The virtual link representation reveals
economic incentives available for ESR operations and sheds light into how
electricity markets should remunerate ESRs. We also explore the role of ESR
physical parameters on market behavior; we show that, while energy and power
capacity defines the amount of flexibility each ESR can provide, storage
charge/discharge efficiencies play a fundamental role in ESR remuneration and
in mitigating market price volatility. We use our proposed framework to analyze
the interplay between ESRs and independent system operators (ISOs) and to
provide insights into optimal deployment strategies of ESRs in power grids.
