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

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. © 2022 Elsevier Ltd