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A stochastic optimization approach for pricing hydropower regulation capacity in electricity markets
Norwegian University of Science and Technology, Faculty of Information Technology, Mathematics and Electrical Engineering, Department of Electrical Power Engineering.
Norwegian University of Science and Technology, Faculty of Information Technology, Mathematics and Electrical Engineering, Department of Electrical Power Engineering.
2014 (English)MasteroppgaveStudent thesis
Abstract [en]

With the introduction of an increasing number of regulation markets, hydropower producers face multiple opportunities regarding how to utilize their water optimally. Such regulation markets can increase profits drastically compared to a single day-ahead spot market, thus the use and comprehension of multi-market optimization tools are valuable for all hydropower producers with storage. This report contains the development of a stochastic multi-stage optimization model where the effects of committing upon different levels of regulation obligations in electricity markets are investigated seen from a hydropower producer’s perspective. A mathematical formulation was written, and a corresponding optimization code implemented. An analysis was further conducted through a case study where a stochastic spot price was constructed and optimized upon by an implemented watercourse with authentic properties. Comparison between different levels of regulation obligations, the effect concerning the introduction of new information during the stochastic optimization period and the benefits of multiple executions (Monte Carlo-simulations) are among the essential output data analyzed. The results indicate such comparisons of regulation obligations to be useful when deciding whether or not to provide regulation capacity, and if so, at which level. Also, the value of good information should not be underestimated when participating in markets with uncertainty regarding the future. The market designs are affecting the choice and design of the optimization strategy used – in markets with more complex properties, analyzing multiple regulation obligations may prove hard to present and time consuming to process. Thus, using a forecasted price of regulation markets is often preferred, but unfortunately such forecasts are hard to obtain. Nevertheless, decision-making tools regarding optimal levels of regulation obligations can be utilized by considering factors such as the needed regulation price to break even from a potential loss in the spot market, as well as the marginal cost of increasing a regulation obligation.

Place, publisher, year, edition, pages
Institutt for elkraftteknikk , 2014. , 181 p.
URN: urn:nbn:no:ntnu:diva-26955Local ID: ntnudaim:11623OAI: diva2:754221
Available from: 2014-10-09 Created: 2014-10-09 Last updated: 2014-10-09Bibliographically approved

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