Hedging Strategy and Electricity Contract Engineering - IFOR

6.4 Modeling of plants and their operational flexibility 123
6.4.4. Run river plant, wind plant and solar plant
As discussed in Chapter 4.6 there are no decisions involved in running these
plant types. Their negative flexibility puts the decision, not in our hands, but in
the hands of the weather. However, when modeling these plants it is important
that the highly stochastic output is taken into account, since it negatively affects
the risk level.
6.4.5. Hydro storage plant
Hydro management is an interesting and complex problem because water is a
storable commodity, whereas electricity is not. The hydro management thus
involves a continuous process of deciding whether to release water now or to
store it and release it later on. The natural inflow does not have an explicit
cost, but using the water for power production represents an opportunity cost
to the owner, since there is only a limited supply available. Consequently, the
operations of a hydro storage plant becomes a temporal resource allocation
problem under uncertainty.
6.4.5.1. Static dispatch strategy
From Chapter 4.3 we know that a hydro storage plant equals a series of
interdependent options. However, we will here, as an introduction derive
a static dispatch strategy that does not take this optionality into account.
Today, the dispatch in each period over the planning horizon is determined.
The choice to produce or pump will not react to new information about,
for example, inflow or spot price, but be totally static. Since the decision
about exercising the option in each period is taken already today, we
actually model the hydro storage plant as a series of hourly futures, not options.
We recall the physical and the technical constraints of a hydro storage plant
that any dispatch strategy Û x k Ý kâ 1ãåäæäæäçã K has to fulfill
Û P 0 V k V max 1Ü k 1Ü
Ý Ü K (6.2)
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and