Hedging Strategy and Electricity Contract Engineering - IFOR

6.6 Power portfolio optimization with CVaR 155
Fig. 6.6: Schematic value decomposition of a static hydro storage-pump plant.
the dispatch is not allowed to react to new information on, for example, swing
option demand. In the following chapter we will however further investigate
the dynamic dispatch strategy that does capture this hedging aspect and more
realistically models the hydro storage plant.
6.6.6. Dynamic portfolio optimization
In the dynamic dispatch strategy we again impose the tighter, but more realistic
constraints on the water stored in the dam, and stochastically model the hydro
storage plant.
The only uncertainty directly influencing the plant is the inflow, which in period
k and scenario j is given by I kã j. The stored energy and spill over loss will also
be stochastic, but influenceable by the owner and are given by V kã j and L kã j
respectively. The probabilistic constraint on the water level, (6.2) can with help
of (6.4) be written as