Optimal management of a mega pumped hydro storage system under stochastic hourly electricity prices in the Iberian Peninsula

• Published in: Energy (Oxford) Vol. 252; p. 123974
• Main Authors: Abadie, Luis M., Goicoechea, Nestor
• Format: Journal Article
• Language: English
• Published: Oxford Elsevier Ltd 01-08-2022; Elsevier BV
• Subjects: Carbon dioxide; Carbon dioxide emissions; Demand; Developed countries; Economics; Electricity; Electricity generation; Electricity pricing; Electrification; Electrity price; Emissions; Energy consumption; Optimal operation; Profitability; Pumped hydro storage; Renewable energy; Reservoir capacity; Reservoirs; Seasonal variations; Security; Security of supply; Stochastic models; Stochasticity; Storage capacity; Strategy; Wind farms; Wind power; Electrity price; Pumped hydro storage; Security of supply; Optimal operation
• ISSN: 0360-5442; 1873-6785
• DOI: 10.1016/j.energy.2022.123974

Concern for the environment led in some developed countries to planning future energy use that combines greater electrification with increasing use of Renewable Energy (RE) in the electricity generation mix. These scenarios can affect Security of Supply (SoS) because the intermittence of RE, its stochastic nature as an electricity generation sources and the demand's behaviour. It is necessary to increase storage capacity, among other measures. This paper analyses the effects of an optimal management strategy based on prices for Pumped Hydro Storage plants (PHES) using a daily mean reverting jump diffusion stochastic model of electricity prices in a risk neutral world including daily seasonality. Results show that a) income with this strategy under uncertainty may be insufficient compared to investment costs; b) the strategy does not usually provide proper guarantees as regards SoS at times of high demand for electricity; c) the technical characteristics of PHES such as the maximum upper & lower reservoir volume are highly significant. The effect of a minimum reservoir capacity at times of high demand is also analysed. PHES profitability can be improved under a Generating Company (GENCO) strategy coordinated with a wind farm and if the avoided CO2 emissions are taken into account.
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•The development of renewables means that greater electricity storage capacity is needed.•We analyse the optimal management of pumped hydro storage under uncertainty.•The nature of pumped hydro storage facilities is relevant to their management.•Pricing strategy does not strengthen security of supply in high demand periods.•Security of supply needs the option of managing a minimum reservoir capacity.