Optimization of Multipurpose Reservoir Systems Using Power Market Models

Hydroeconomic models have been used to determine policies for efficient allocation of scarce water resources. Hydropower benefits are typically represented through exogenous electricity prices, but these do not consider the effect that the power market can have on the hydropower release policy and vice versa. To improve the representation of hydropower benefits in hydroeconomic models, an application of stochastic dynamic programming, known as the water value method, was used to maximize irrigation benefits while minimizing the costs of power generation within a power market. The method yields optimal operation rules that maximize current and expected future benefits as a function of reservoir level, week of the year, and inflow state. The method was tested on the Iberian Peninsula and performed better than traditional approaches that use exogenous prices: resulting operation rules were more realistic and sensitive to hydrological variability. Internally calculated hydropower prices provided better results than exogenous hydropower prices and can therefore improve the representation of hydropower benefits in hydroeconomic models. (C) 2014 American Society of Civil Engineers.