IDEAS home Printed from https://ideas.repec.org/a/gam/jeners/v14y2021i19p6368-d650191.html
   My bibliography  Save this article

Financial Risk Control of Hydro Generation Systems through Market Intelligence and Stochastic Optimization

Author

Listed:
  • Laís Domingues Leonel

    (Department of Energy Engineering and Electrical Automation, University of São Paulo, São Paulo 05508-900, SP, Brazil)

  • Mateus Henrique Balan

    (Department of Energy Engineering and Electrical Automation, University of São Paulo, São Paulo 05508-900, SP, Brazil)

  • Dorel Soares Ramos

    (Department of Energy Engineering and Electrical Automation, University of São Paulo, São Paulo 05508-900, SP, Brazil)

  • Erik Eduardo Rego

    (Department of Production Engineering, University of São Paulo, São Paulo 05508-010, SP, Brazil)

  • Rodrigo Ferreira de Mello

    (Group CTG Brazil, São Paulo 04551-060, SP, Brazil)

Abstract

In the competitive electricity wholesale market, decisions regarding hydro generators are generally made under uncertain conditions, such as pool price, hydrological affluence, and other players’ strategies. From this perspective, this work presents a computational model formulation with associated market intelligence and game theory tools to support a decision-making process in a competitive environment. The idea behind using a market intelligence tool is to apply a stochastic optimization model with an associated conditional value at risk metric defining a utility function, which calculates the weight that the agents attribute to each stochastic variable associated with the problem to be faced. Subsequently, this utility function is used to emulate the other agents’ strategies based on their previous decisions. The final step finds the Nash equilibrium solution between a player and their competitors. The methodology is applied to the monthly allocation of firm energy by hydro generators under the current Brazilian regulatory framework. The results show a change in the generators’ behavior over the years, from risk-neutral agents seeking to maximize their return with 88% of decisions based on spot price forecasts in 2015, to risk-averse agents with 100% of decisions following a factor that is directly impacted by the hydrological affluence forecasts in 2018.

Suggested Citation

  • Laís Domingues Leonel & Mateus Henrique Balan & Dorel Soares Ramos & Erik Eduardo Rego & Rodrigo Ferreira de Mello, 2021. "Financial Risk Control of Hydro Generation Systems through Market Intelligence and Stochastic Optimization," Energies, MDPI, vol. 14(19), pages 1-18, October.
  • Handle: RePEc:gam:jeners:v:14:y:2021:i:19:p:6368-:d:650191
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1996-1073/14/19/6368/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/1996-1073/14/19/6368/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shapiro, Alexander & Tekaya, Wajdi & da Costa, Joari Paulo & Soares, Murilo Pereira, 2013. "Risk neutral and risk averse Stochastic Dual Dynamic Programming method," European Journal of Operational Research, Elsevier, vol. 224(2), pages 375-391.
    2. Greve, Thomas & Teng, Fei & Pollitt, Michael G. & Strbac, Goran, 2018. "A system operator’s utility function for the frequency response market," Applied Energy, Elsevier, vol. 231(C), pages 562-569.
    3. Antonio J. Conejo & Miguel Carrión & Juan M. Morales, 2010. "Decision Making Under Uncertainty in Electricity Markets," International Series in Operations Research and Management Science, Springer, number 978-1-4419-7421-1, March.
    4. Vinel, Alexander & Mortaz, Ebrahim, 2019. "Optimal pooling of renewable energy sources with a risk-averse approach: Implications for US energy portfolio," Energy Policy, Elsevier, vol. 132(C), pages 928-939.
    5. Fernandes, Gláucia & Gomes, Leonardo Lima & Brandão, Luiz Eduardo Teixeira, 2018. "A risk-hedging tool for hydro power plants," Renewable and Sustainable Energy Reviews, Elsevier, vol. 90(C), pages 370-378.
    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. Fellipe Fernandes Goulart dos Santos & Marcus Vinícius de Castro Lobato & Douglas Alexandre Gomes Vieira & Adriano Chaves Lisboa & Rodney Rezende Saldanha, 2022. "A Nash Equilibrium Approach to the Brazilian Seasonalization of Energy Certificates," Energies, MDPI, vol. 15(6), pages 1-13, March.
    2. Arthur Lauro & Daniel Kitamura & Waleska Lima & Bruno Dias & Tiago Soares, 2023. "Considering Forward Electricity Prices for a Hydro Power Plant Risk Analysis in the Brazilian Electricity Market," Energies, MDPI, vol. 16(3), pages 1-13, January.
    3. Laís Domingues Leonel & Mateus Henrique Balan & Luiz Armando Steinle Camargo & Dorel Soares Ramos & Roberto Castro & Felipe Serachiani Clemente, 2024. "Stochastic Decision-Making Optimization Model for Large Electricity Self-Producers Using Natural Gas in Industrial Processes: An Approach Considering a Regret Cost Function," Energies, MDPI, vol. 17(21), pages 1-19, October.

    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. Yasemin Merzifonluoglu & Eray Uzgoren, 2018. "Photovoltaic power plant design considering multiple uncertainties and risk," Annals of Operations Research, Springer, vol. 262(1), pages 153-184, March.
    2. de Queiroz, Anderson Rodrigo, 2016. "Stochastic hydro-thermal scheduling optimization: An overview," Renewable and Sustainable Energy Reviews, Elsevier, vol. 62(C), pages 382-395.
    3. Pandžić, Hrvoje & Kuzle, Igor & Capuder, Tomislav, 2013. "Virtual power plant mid-term dispatch optimization," Applied Energy, Elsevier, vol. 101(C), pages 134-141.
    4. Wang, Dongxiao & Qiu, Jing & Reedman, Luke & Meng, Ke & Lai, Loi Lei, 2018. "Two-stage energy management for networked microgrids with high renewable penetration," Applied Energy, Elsevier, vol. 226(C), pages 39-48.
    5. Sadeghian, Omid & Mohammadpour Shotorbani, Amin & Mohammadi-Ivatloo, Behnam & Sadiq, Rehan & Hewage, Kasun, 2021. "Risk-averse maintenance scheduling of generation units in combined heat and power systems with demand response," Reliability Engineering and System Safety, Elsevier, vol. 216(C).
    6. Christos N. Dimitriadis & Evangelos G. Tsimopoulos & Michael C. Georgiadis, 2021. "A Review on the Complementarity Modelling in Competitive Electricity Markets," Energies, MDPI, vol. 14(21), pages 1-27, November.
    7. Mohagheghi, Erfan & Gabash, Aouss & Alramlawi, Mansour & Li, Pu, 2018. "Real-time optimal power flow with reactive power dispatch of wind stations using a reconciliation algorithm," Renewable Energy, Elsevier, vol. 126(C), pages 509-523.
    8. Grover-Silva, Etta & Heleno, Miguel & Mashayekh, Salman & Cardoso, Gonçalo & Girard, Robin & Kariniotakis, George, 2018. "A stochastic optimal power flow for scheduling flexible resources in microgrids operation," Applied Energy, Elsevier, vol. 229(C), pages 201-208.
    9. Gauvin, Charles & Delage, Erick & Gendreau, Michel, 2017. "Decision rule approximations for the risk averse reservoir management problem," European Journal of Operational Research, Elsevier, vol. 261(1), pages 317-336.
    10. Jaber Valinejad & Mousa Marzband & Michael Elsdon & Ameena Saad Al-Sumaiti & Taghi Barforoushi, 2019. "Dynamic Carbon-Constrained EPEC Model for Strategic Generation Investment Incentives with the Aim of Reducing CO 2 Emissions," Energies, MDPI, vol. 12(24), pages 1-35, December.
    11. Hernán Gómez-Villarreal & Miguel Carrión & Ruth Domínguez, 2019. "Optimal Management of Combined-Cycle Gas Units with Gas Storage under Uncertainty," Energies, MDPI, vol. 13(1), pages 1-29, December.
    12. Alfredo Alcayde & Raul Baños & Francisco M. Arrabal-Campos & Francisco G. Montoya, 2019. "Optimization of the Contracted Electric Power by Means of Genetic Algorithms," Energies, MDPI, vol. 12(7), pages 1-13, April.
    13. Michael G. Pollitt & Karim L. Anaya, 2021. "Competition in Markets for Ancillary Services? The Implications of Rising Distributed Generation," The Energy Journal, , vol. 42(1_suppl), pages 1-28, June.
    14. Hanif, Sarmad & Alam, M.J.E. & Roshan, Kini & Bhatti, Bilal A. & Bedoya, Juan C., 2022. "Multi-service battery energy storage system optimization and control," Applied Energy, Elsevier, vol. 311(C).
    15. Thibaut Th'eate & S'ebastien Mathieu & Damien Ernst, 2020. "An Artificial Intelligence Solution for Electricity Procurement in Forward Markets," Papers 2006.05784, arXiv.org, revised Dec 2020.
    16. Savelli, Iacopo & Morstyn, Thomas, 2021. "Electricity prices and tariffs to keep everyone happy: A framework for fixed and nodal prices coexistence in distribution grids with optimal tariffs for investment cost recovery," Omega, Elsevier, vol. 103(C).
    17. Nielsen, Maria Grønnegaard & Morales, Juan Miguel & Zugno, Marco & Pedersen, Thomas Engberg & Madsen, Henrik, 2016. "Economic valuation of heat pumps and electric boilers in the Danish energy system," Applied Energy, Elsevier, vol. 167(C), pages 189-200.
    18. Paolo Falbo & Carlos Ruiz, 2021. "Joint optimization of sales-mix and generation plan for a large electricity producer," Papers 2110.02016, arXiv.org.
    19. Li, Yan & Feng, Tian-tian & Liu, Li-li & Zhang, Meng-xi, 2023. "How do the electricity market and carbon market interact and achieve integrated development?--A bibliometric-based review," Energy, Elsevier, vol. 265(C).
    20. Guanglei Wang & Hassan Hijazi, 2018. "Mathematical programming methods for microgrid design and operations: a survey on deterministic and stochastic approaches," Computational Optimization and Applications, Springer, vol. 71(2), pages 553-608, November.

    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:gam:jeners:v:14:y:2021:i:19:p:6368-:d:650191. 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: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    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.