IDEAS home Printed from https://ideas.repec.org/a/eee/energy/v252y2022ics0360544222008775.html
   My bibliography  Save this article

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

Author

Listed:
  • Abadie, Luis M.
  • Goicoechea, Nestor

Abstract

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.

Suggested Citation

  • Abadie, Luis M. & Goicoechea, Nestor, 2022. "Optimal management of a mega pumped hydro storage system under stochastic hourly electricity prices in the Iberian Peninsula," Energy, Elsevier, vol. 252(C).
    • Handle: RePEc:eee:energy:v:252:y:2022:i:c:s0360544222008775
    DOI: 10.1016/j.energy.2022.123974
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0360544222008775
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.energy.2022.123974?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kozlova, Mariia, 2017. "Real option valuation in renewable energy literature: Research focus, trends and design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 180-196.
    2. Child, Michael & Kemfert, Claudia & Bogdanov, Dmitrii & Breyer, Christian, 2019. "Flexible electricity generation, grid exchange and storage for the transition to a 100% renewable energy system in Europe," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 139, pages 80-101.
    3. Rehman, Shafiqur & Al-Hadhrami, Luai M. & Alam, Md. Mahbub, 2015. "Pumped hydro energy storage system: A technological review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 44(C), pages 586-598.
    4. Lazkano, Itziar & Nøstbakken, Linda & Pelli, Martino, 2017. "From fossil fuels to renewables: The role of electricity storage," European Economic Review, Elsevier, vol. 99(C), pages 113-129.
    5. Zerrahn, Alexander & Schill, Wolf-Peter & Kemfert, Claudia, 2018. "On the economics of electrical storage for variable renewable energy sources," European Economic Review, Elsevier, vol. 108(C), pages 259-279.
    6. Lu, Bin & Stocks, Matthew & Blakers, Andrew & Anderson, Kirsten, 2018. "Geographic information system algorithms to locate prospective sites for pumped hydro energy storage," Applied Energy, Elsevier, vol. 222(C), pages 300-312.
    7. Islam, M.S. & Das, Barun K. & Das, Pronob & Rahaman, Md Habibur, 2021. "Techno-economic optimization of a zero emission energy system for a coastal community in Newfoundland, Canada," Energy, Elsevier, vol. 220(C).
    8. Villaplana Conde, Pablo, 2003. "Pricing power derivatives: a two-factor jump-diffusion approach," DEE - Working Papers. Business Economics. WB wb031805, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    9. Anjo, João & Neves, Diana & Silva, Carlos & Shivakumar, Abhishek & Howells, Mark, 2018. "Modeling the long-term impact of demand response in energy planning: The Portuguese electric system case study," Energy, Elsevier, vol. 165(PA), pages 456-468.
    10. Sinn, Hans-Werner, 2017. "Buffering volatility: A study on the limits of Germany's energy revolution," European Economic Review, Elsevier, vol. 99(C), pages 130-150.
    11. Fortes, Patrícia & Simoes, Sofia G. & Gouveia, João Pedro & Seixas, Júlia, 2019. "Electricity, the silver bullet for the deep decarbonisation of the energy system? Cost-effectiveness analysis for Portugal," Applied Energy, Elsevier, vol. 237(C), pages 292-303.
    12. Alvaro Escribano & J. Ignacio Peña & Pablo Villaplana, 2011. "Modelling Electricity Prices: International Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(5), pages 622-650, October.
    13. Menegaki, Angeliki, 2008. "Valuation for renewable energy: A comparative review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 12(9), pages 2422-2437, December.
    14. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
    15. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 113-147.
    16. Davis, Graham A. & Owens, Brandon, 2003. "Optimizing the level of renewable electric R&D expenditures using real options analysis," Energy Policy, Elsevier, vol. 31(15), pages 1589-1608, December.
    17. Gouveia, João Pedro & Dias, Luís & Martins, Inês & Seixas, Júlia, 2014. "Effects of renewables penetration on the security of Portuguese electricity supply," Applied Energy, Elsevier, vol. 123(C), pages 438-447.
    18. Abadie, Luis Ma & Chamorro, José M., 2019. "Physical adequacy of a power generation system: The case of Spain in the long term," Energy, Elsevier, vol. 166(C), pages 637-652.
    19. Jan Seifert & Marliese Uhrig-Homburg, 2007. "Modelling jumps in electricity prices: theory and empirical evidence," Review of Derivatives Research, Springer, vol. 10(1), pages 59-85, January.
    20. Krajacic, Goran & Duic, Neven & Carvalho, Maria da Graça, 2011. "How to achieve a 100% RES electricity supply for Portugal?," Applied Energy, Elsevier, vol. 88(2), pages 508-517, February.
    21. Muche, Thomas, 2009. "A real option-based simulation model to evaluate investments in pump storage plants," Energy Policy, Elsevier, vol. 37(11), pages 4851-4862, November.
    22. Alvarez, Gonzalo E., 2020. "Operation of pumped storage hydropower plants through optimization for power systems," Energy, Elsevier, vol. 202(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hasan Huseyin Coban, 2023. "Hydropower Planning in Combination with Batteries and Solar Energy," Sustainability, MDPI, vol. 15(13), pages 1-21, June.
    2. Mahfoud, Rabea Jamil & Alkayem, Nizar Faisal & Zhang, Yuquan & Zheng, Yuan & Sun, Yonghui & Alhelou, Hassan Haes, 2023. "Optimal operation of pumped hydro storage-based energy systems: A compendium of current challenges and future perspectives," Renewable and Sustainable Energy Reviews, Elsevier, vol. 178(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Assereto, Martina & Byrne, Julie, 2021. "No real option for solar in Ireland: A real option valuation of utility scale solar investment in Ireland," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    2. Maeda, Mansaku & Watts, David, 2019. "The unnoticed impact of long-term cost information on wind farms’ economic value in the USA. – A real option analysis," Applied Energy, Elsevier, vol. 241(C), pages 540-547.
    3. Zhang, Hanyu & Assereto, Martina & Byrne, Julie, 2023. "Deferring real options with solar renewable energy certificates," Global Finance Journal, Elsevier, vol. 55(C).
    4. Pringles, Rolando & Olsina, Fernando & Penizzotto, Franco, 2020. "Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method," Renewable Energy, Elsevier, vol. 151(C), pages 846-864.
    5. Mo, Jian-Lei & Schleich, Joachim & Zhu, Lei & Fan, Ying, 2015. "Delaying the introduction of emissions trading systems—Implications for power plant investment and operation from a multi-stage decision model," Energy Economics, Elsevier, vol. 52(PB), pages 255-264.
    6. Marcelo G. Figueroa, 2006. "Pricing Multiple Interruptible-Swing Contracts," Birkbeck Working Papers in Economics and Finance 0606, Birkbeck, Department of Economics, Mathematics & Statistics.
    7. Tseng, Chung-Li & Zhu, Wei & Dmitriev, Alexandre, 2009. "Variable capacity utilization, ambient temperature shocks and generation asset valuation," Energy Economics, Elsevier, vol. 31(6), pages 888-896, November.
    8. Hlouskova, Jaroslava & Kossmeier, Stephan & Obersteiner, Michael & Schnabl, Alexander, 2005. "Real options and the value of generation capacity in the German electricity market," Review of Financial Economics, Elsevier, vol. 14(3-4), pages 297-310.
    9. Lei Zhu & ZhongXiang Zhang & Ying Fan, 2011. "An evaluation of overseas oil investment projects under uncertainty using a real options based simulation model," Economics Study Area Working Papers 121, East-West Center, Economics Study Area.
    10. Zhang, M.M. & Wang, Qunwei & Zhou, Dequn & Ding, H., 2019. "Evaluating uncertain investment decisions in low-carbon transition toward renewable energy," Applied Energy, Elsevier, vol. 240(C), pages 1049-1060.
    11. Max F. Schöne & Stefan Spinler, 2017. "A four-factor stochastic volatility model of commodity prices," Review of Derivatives Research, Springer, vol. 20(2), pages 135-165, July.
    12. Zhang, M.M. & Zhou, D.Q. & Zhou, P. & Chen, H.T., 2017. "Optimal design of subsidy to stimulate renewable energy investments: The case of China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 71(C), pages 873-883.
    13. Graça Gomes, João & Medeiros Pinto, José & Xu, Huijin & Zhao, Changying & Hashim, Haslenda, 2020. "Modeling and planning of the electricity energy system with a high share of renewable supply for Portugal," Energy, Elsevier, vol. 211(C).
    14. Locatelli, Giorgio & Mancini, Mauro & Lotti, Giovanni, 2020. "A simple-to-implement real options method for the energy sector," Energy, Elsevier, vol. 197(C).
    15. de Jong, C.M., 2005. "The Nature of Power Spikes: a regime-switch approach," ERIM Report Series Research in Management ERS-2005-052-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    16. Mombello, Bruno & Olsina, Fernando & Pringles, Rolando, 2023. "Valuing photovoltaic power plants by compound real options," Renewable Energy, Elsevier, vol. 216(C).
    17. Zhang, Mingming & Zhou, Dequn & Zhou, Peng, 2014. "A real option model for renewable energy policy evaluation with application to solar PV power generation in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 944-955.
    18. Zhang, Mingming & Liu, Liyun & Wang, Qunwei & Zhou, Dequn, 2020. "Valuing investment decisions of renewable energy projects considering changing volatility," Energy Economics, Elsevier, vol. 92(C).
    19. Zhu, Lei & Fan, Ying, 2013. "Modelling the investment in carbon capture retrofits of pulverized coal-fired plants," Energy, Elsevier, vol. 57(C), pages 66-75.
    20. Schachter, J.A. & Mancarella, P., 2016. "A critical review of Real Options thinking for valuing investment flexibility in Smart Grids and low carbon energy systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 56(C), pages 261-271.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:energy:v:252:y:2022:i:c:s0360544222008775. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/energy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.