Hedging Strategy and Electricity Contract Engineering - IFOR

MWh
CHF/
P
184 Case study
O6M0
N4L5
M
30
L
15
Static value
Q
Dynamic value
R
Hedging value
Total value
Fig. 7.7: Value decomposition of water for a risk constraint of -2 million CHF.
The two latter components, having their origins in the operational flexibility of
the hydro storage plant, differ strongly with the risk constraint that is imposed.
For a fairly tight constraint the hedging capability evidently has a large value,
whereas the value stemming from having a dynamic dispatch strategy, that
allows us to produce at high prices, is small. The contrary is true for a loose
risk constraint, which is illustrated in Figure 7.7 and 7.8.
7.4.1. Value of pumping
Let us, as in Chapter 6.6.5, define the value of pumping as the expected profit
given by an optimization, where pumping is allowed minus the expected
profit when no pumping is allowed. The small differences between peak
and off-peak prices erode much of this potential value and this additional
option is almost never used, as shown in Figure 7.9, 7.10 and 7.11. The
value of pumping is hence small. The highest value occurs for a pure profit
maximization (C 1325000), but the value is however less than 700 CHF,
which corresponds to a difference of less than 0.01 percent. For tighter risk
constraint the value of pumping is even more negligible.
The conclusion that pumping in general has no value is however indeed wrong,