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

See all articles by Santtu Karhinen

Santtu Karhinen

Government of the Republic of Finland - Finnish Environment Institute

Hannu Huuki

University of Oulu - Department of Economics; Government of the Republic of Finland - Finnish Environment Institute

Date Written: May 9, 2017

Abstract

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

Karhinen, Santtu and Huuki, Hannu, Private and Social Benefits of a Pumped Hydro Energy Storage with Increasing Amount of Wind Power (May 9, 2017). Available at SSRN: https://ssrn.com/abstract=2965506 or http://dx.doi.org/10.2139/ssrn.2965506

Santtu Karhinen (Contact Author)

Government of the Republic of Finland - Finnish Environment Institute ( email )

00260 Helsinki
Finland

Hannu Huuki

University of Oulu - Department of Economics ( email )

PO Box 4600
FIN-90014 University of Oulu
Finland

Government of the Republic of Finland - Finnish Environment Institute ( email )

00260 Helsinki
Finland

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