HYDRO THERMAL OPTIMIZATION - fu-berlin.de
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1 2 1 2 HYDRO THERMAL OPTIMIZATION decision support system Niko A.ILIADIS hydro thermal portfolio management presentation @ Schloss Leopoldskron 28 Sep 2004
Transcript of HYDRO THERMAL OPTIMIZATION - fu-berlin.de
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
hydro thermal portfolio managementpresentation @ Schloss Leopoldskron
28 Sep 2004
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
contents1. thesis initiation2. context3. problem definition4. main milestones of the thesis5. milestones presentation6. résumé
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
1. thesis initiation■ Title: hydro-thermal portfolio management in a market environment
■ thesis is rising from a real case that is examined within the Electrabel company
■ based on a collaboration between Electrabel, EPFL and PSR institute■ motivation for the thesis (EPFL)
□ using a case study from an electricity utility□ responding to a real demand from a company□ achieving the thesis within a corporate context
■ motivation for the HTO-DSS project (Electrabel)□ need for a state of the art hydro portfolio management know-how□ introduce sophisticated approach of risk management
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
2. context■ deregulation of ancient monopoly■ presence of a liberalized market (from cost min to revenue max)■ presence of spot and financial markets (risk management tools)■ variety of production technologies (thermal, hydro, wind,…)■ presence in different countries (wide interconnected geographical
position)■ approaching the 2007 fully liberalized electricity market (one
market place widely interconnected)■ different market attitudes of the player (market maker, price taker)■ definition of a global risk policy and a asset portfolio specific policy
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
3. problem definition (1/2)asset optimization under specific risk framework
hydro plants
thermal plants
fuel contracts
FR BE.NE.LUX DEasset portfolio
electricity prices
fuel prices
inflows
r i s k f r a m e w o r k
revenues
maintenance
production
hedging
risk map
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
3. problem definition (2/2)■ this problem is formulated as follows:
we need to create a decision support system (DSS) in order to:□ optimize (maximize the value) the asset portfolio value□ exposed to electricity and fuel price and inflow availability uncertainty□ under risk constraints
■ the following sub-problems are identified:1. define a risk framework that has to be:
• Corporate wide• Asset specific
2. implement hydro-thermal optimization in a liberalized market under the above mentioned risk framework
3. analyze the interactions of player’s market attitude on each country and define the appropriate strategy
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
4. main milestones of the thesis1. consideration of a part of the portfolio were we will stretch the
issues of:■ development and calibration of the hydro-thermal optimization
algorithm■ development of the methodology for the risk framework definition■ development of the portfolio management methodology
2. consideration of the total portfolio were we will stretch the issues of:■ applicability of the above algorithm in the fuel contract portfolio■ implementation of the above methodologies to the total portfolio
3. analysis of the player's market attitude and the interaction between the markets
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestones presentation1. hydro-thermal portfolio consideration and development of risk and
portfolio management methodology
2. fuel contract consideration and implementation of the above methodologies to the total portfolio
3. player’s market attitude
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 1 (hydro-thermal portfolio) (1/10)■ the portfolio considered consists of:
□ 774 MW / 1777 GWh hydro reservoir and run-of-river assets□ 375 MW of nuclear asset (no modulation)
■ the combination of the assets formsan homogenous portfolio Eget
IC: 37 MWAP: 82 GWh
LouronIC: 49 MW
AP: 87 GWh
TetIC: 49 MW
AP: 171 GWh
CapdenacIC: 29 MW
AP: 87 GWh
MaregesIC: 302 MW
AP: 427 GWh
SoulomIC: 57 MW
AP: 267 GWh
LicqIC: 24 MW
AP: 93 GWh
ArtousteHouratIC: 227 MW
AP: 563 GWh
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 1 (hydro-thermal portfolio) (2/10)■ problem description
□ hydro assets□ stochastic inflows and prices ( = decision under uncertainty)□ revenue maximization□ in forward and spot market□ under risk constraints
■ time period definition□ long term → >1year□ medium term → 1week< , 1year>□ short term → <1week
■ markets available□ forward → derivatives market with physical delivery□ spot → day-ahead hourly auction□ balancing market→ real time market
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 1 (hydro-thermal portfolio) (3/10)■ risk management definition
we have hydro assets, with reservoirs, having high flexibility, that require dynamic portfolio management
■ risk types:□ inflow = available yearly production + intra-year distribution□ price = available yearly revenues + intra-year distribution
[m3]Or[EUR/MWh]
[weeks]
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 1 (hydro-thermal portfolio) (4/10)■ risk framework is derived from:
□ min revenues needed for the company in a CI (R@R approach)□ budget to attain based on the forecasts□ overall wish to risk exposure (risk appetite)
Rmin budget forecast riskMax0
[EUR]■ risk framework definition
□ corporate risk levels defining: Rmin□ portfolio mgt. risk levels defining: budget and risk appetite
■ risk reduction capacity□ production re-arrangement in order to concentrate in low price and
inflows distribution stages (auto-hedging capacity of the asset)□ use of financial instruments in order to “lock” a a certain price
■ the above options lead to the following trade-offs□ Rmin guaranteed vs. high risk short term revenues□ low risk mkts. vs. high risk/flex mkts.
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 1 (hydro-thermal portfolio) (5/10)■ we need to optimize the production of the assets in order to:
□ guarantee Rmin for the total portfolio□ perform asset backed arbitrage in the long term market in order to
profit from the forward market price distortions□ sell the high flexibility of the asset in the short term and real time market
[EUR]
Flexibility
Asset Backed Arbitrage
Minimum revenuestimePresent Future
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 1 (hydro-thermal portfolio) (6/10)■ main trade-off is:
use the water of the reservoir now (immediate benefit) or “tomorrow” (future benefit)
[EUR]
immediate operating
benefit
future operating benefit
final reservoir level
■ the algorithm used to solve this problem is based on the Stochastic Dual Dynamic Programming (SDDP) technique where:□ the sum of the immediate and future benefit is maximized□ for every stage (…, week, month, …)□ calculating a policy table (future benefit function) for every stage□ by approximating this function with lines (Bender’s cuts)
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 1 (hydro-thermal portfolio) (7/10)■ input
□ inflow scenarios qt
□ water level on reservoirs Vt
□ spot price scenarios Πd
□ minimum revenues guaranteed @ confidence interval Rmin_Rφ
■ output□ production schedule Ut□ allocation in the markets et, Ec□ risk view of the portfolio□ hedging strategy
HTO.SDDP ■ Input: Vt, qt, Πdt, Rmin_Rφ
■ Output: Ut, et, Ect
MaxRev Optfolio
HTO.SDDP ■ Input: Vt, qt-1, Πdt, Rmin_Rφ
■ A. Output: UtB. Output: et, Ect
OR
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 1 (hydro-thermal portfolio) (8/10)■ preliminary results
□ for the hydro system□ spot market (no derivatives market)□ no risk constraints (no minimum revenues guaranteed)
total production cdf total revenues cdf
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 1 (hydro-thermal portfolio) (9/10)■ preliminary results
weekly generation distribution
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 1 (hydro-thermal portfolio) (10/10)■ following steps
□ model calibration considering risk constraints and use of derivative products (forwards)
□ risk allocation on the assets defining the portfolio□ modeling of the short-term trade-off between spot and balancing
market
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestones presentation1. hydro-thermal portfolio consideration and development of risk and
portfolio management methodology
2. fuel contract consideration and implementation of the above methodologies to the total portfolio
3. player’s market attitude
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 2 (total portfolio) (1/2)■ the total portfolio will be considered
■ the following technologies will be considered within the portfolio:□ coal production plants□ gas production plants□ hydro production plants□ nuclear production plants
■ the following developed market structures will be considered:□ France□ Netherlands□ Germany
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 2 (total portfolio) (2/2)■ additional factors to be considered:
□ thermal plants with considerable flexibility□ fuel price uncertainty□ optimization of fuel contracts
■ the total portfolio will be optimized taking into consideration the synergies between:□ the interconnected countries (different price areas)□ the complementarities of the technologies□ the allocation of the risk in the total portfolio (cross-hedging capacity)
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestones presentation1. hydro-thermal portfolio consideration and development of risk and
portfolio management methodology
2. fuel contract consideration and implementation of the above methodologies to the total portfolio
3. player’s market attitude
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 3 (player’s market attitude) (1/2)■ we need to consider:
□ presence in 4 markets (Belgium, Netherlands, France and Germany)□ with fully developed market structure (not Belgium)□ having high degree of interconnection□ and different importance of the player’s presence at each market
■ we can identify 3 main market attitudes□ market maker offering both sides of the curve□ important player influence on prices□ price taker “takes” the price that the market defines
■ according to each attitude the player develops a different strategywhich applies to each market
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
5. milestone 3 (player’s market attitude) (2/2)■ we need to define:
□ the strategy of the player for each market□ the interaction of the markets according to the player’s action□ the synergies of the markets to the player’s strategy for:
• portfolio management• risk management
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HYDRO THERMAL OPTIMIZATIONdecision support system
Niko A. ILIADIS
6. résumé■ new-coming factors:
□ liberalized electricity markets with a variety of products□ introduction of the electricity price uncertainty□ increase of interconnection degree within countries/markets
■ impose to the electricity asset industry a new approach concerning:□ the portfolio management
• optimization of the assets• synergies between assets
□ the risk management• exploiting the auto-hedging capacity of the assets• using financial products
□ the strategic position of a player at each market• bidding strategy in the market• optimal market share
