Hedging Strategy and Electricity Contract Engineering - IFOR

MWh
CHF/
P
7.4 Value decomposition 185
M
60
N4L5
M
30
L
15
Static value
Q
Dynamic value
R
Hedging value
Total value
Fig. 7.8: Value decomposition of water for a risk constraint of 2 million CHF.
since the low value coming from our case study is a result of the fairly low
intra-day variations. The value in general of course also heavily depends on
the efficiency of the pumps, here 70%.
7.4.2. Value of additional turbine capacity
From Chapter 4.3 we know that the hydro plant equals a series of interdependent
options. An increase in the turbine capacity would in financial terms
imply that we could exercise a greater amount of underlying electricity per
period. This is of course valuable, but the load factor measured as the ratio
between the average available water per period and the maximum possible
production per period, V end 7
V 0
4 JS
1
J
1 I a KU j
K p
jT
max
is already fairly low and amounts
to less than 18%. The limitation is therefore not the turbine capacity, but
rather the amount of available water, i. e. the coupling of the options is the
limitation not the underlying amount in each of the option. The majority of the
production is actually conducted at a dispatch below the maximum capacity
because of the water limitations, why intuitively the value of increased turbine
capacity should be limited.
One could imagine that the value of increasing the turbine capacity would be
highest for a loose risk constraint when the dispatch strategy is focused on producing
at high prices, since peak prices could then be utilized even better. By