Hedging Strategy and Electricity Contract Engineering - IFOR

186 Case study
Risk constraint (CHF million) -5.6 -4 -2 -1.5 0 2
Increased expected profit (%) 0.006 0.05 0.04 0.05 0.06 0.07
Tab. 7.5: Effect of pumping for different risk levels.
increasing the maximum turbine capacity with 10% and optimizing the same
portfolio, but with this new technical constraint we see that the value of this increased
turbine capacity is limited. As assumed the value is highest for a pure
profit maximization and amounts to an additional expected profit of 0.07%, as
seen in Table 7.5.
7.5. Dispatch strategy
The abstract 9 weighting 6 88J8 6 9 factors, 41
430 and 1 6 88J8 6 9 7
30
the dispatch from the corresponding exercise functions g41 6 9 6
g430
7
8J88
building up
and
6 88J8 6
g71
g730
, are our decision variables for the production portfolio. They
however do not in them selves visualize the optimal dispatch very well. We
have therefore plotted the dispatch as a function of the spot price and the
demand, which are the only factors influencing our dispatch decision, for
some risk constraints. By starting with the optimal dispatch for a very loose
risk constraint of 2 million CHF, one can in Figure 7.9 see that production is
solely a function of the spot price, which is consistent with our hypothesis
that for loose risk constraints the strategy is focused only on a high profit,
implying that a large amount of the water is dispatched during high price
periods. Further it is consistent with Corollary 6.6, stating that at the most two
weighting factors for producing and pumping respectively will be non-zero.
Some pumping is conducted for low prices and low demand. This is however
a fairly small amount of, on average, slightly more than 200 MWh over the
two weeks. This can be compared with the average production of more than
130000 MWh. The pumping hence only amounts to less than 0.2 percent of
the production. For tighter risk constraint the pumped amount is even less and
often non-existing. The limited appetite for pumping is, as mentioned a result
of the small difference of, on average, 6% between peak and off-peak prices,
which should be compared with the pump efficiency of 70%. Hence it does
not, on average, payoff to pump during off-peak to ’store’ cheap electricity for
production during a peak period.