Private and Social Benefits of a Pumped Hydro Energy Storage with Increasing Amount of Wind Power
49 Pages Posted: 9 May 2017 Last revised: 11 May 2017
Date Written: May 9, 2017
In this paper we calculate long-term profitability of a pumped hydro energy storage (PHES) plant planned to be built in an old mine in Pyhäjärvi, Finland. We model the optimal PHES operation for several scenarios with different wind power penetration levels. Our modelling approach first involves estimating wholesale electricity prices for day-ahead, intraday and balancing market as a function of wind power penetration. The estimated price profiles are fed into a dynamic programming model, where the PHES plant maximises its balancing market revenue given the optimal commitment in the day-ahead market. We show that increasing wind penetration changes the optimal PHES operation and increases the PHES profits. Additionally, we quantify how the wind power balancing costs are affected by the PHES investment. Policy implications are drawn based on the estimated private and social benefits from the investment.
Keywords: Hydro power, wind power, energy storage, dynamic programming
JEL Classification: Q41, Q42
Suggested Citation: Suggested Citation