Arbitrage Opportunities for Pumped Storage Power Plants in Switzerland

47 Pages Posted: 20 Feb 2017 Last revised: 26 Nov 2017

Date Written: August 2, 2016

Abstract

Over the past decade Switzerland has invested significantly in pumped storage plants (PSP). They aim to exploit arbitrage opportunities by pumping water from a lower reservoir to an upper reservoir to store electricity in the form of hydraulic potential energy when prices are low and generating when prices are high. The changing generation-mix in Switzerland threatens these arbitrage opportunities in the long-term. To study this, we develop a heuristic to endogenise PSP bidding decisions, and integrate it in [1]’s simulation model of the Swiss electricity market. Our results show that initially the increase of photovoltaic capacity encourages pumping, but the nuclear phase-out and the expiration of long-term import contracts significantly decrease the available energy, leading to a decline in pumping. Although those changes in the capacity-mix increase the difference between peak and off-peak prices significantly, PSP are unable to exploit these because of the low availability of cheap energy to pump. This situation severely limits arbitrage opportunities in the long-term. We conclude that large scale arbitrage requires the availability of cheap excess energy. This can be achieved either by demand management or by supporting base load technologies.

Keywords: Energy storage, Swiss electricity market, Pumped storage power plants (PSP), Hydropower, Simulation

JEL Classification: C63, Q41, Q42

Suggested Citation

Osorio, Sebastian and van Ackere, Ann, Arbitrage Opportunities for Pumped Storage Power Plants in Switzerland (August 2, 2016). Available at SSRN: https://ssrn.com/abstract=2920529 or http://dx.doi.org/10.2139/ssrn.2920529

Sebastian Osorio (Contact Author)

PIK ( email )

Potsdam Institute for Climate Impact Research
Telegraphenberg A 31
Potsdam, 14473
Germany
+493312882436 (Phone)

Ann Van Ackere

Université de Lausanne ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
+41216970454 (Phone)

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