Presentation to EPOC Winter Workshop
Auckland New Zealand
October 26 2010 by E Grant Read
(with typos corrected)
This presentation is intended to facilitate academic discussion, rather than to advocate, or provide a basis for, any course of action. The author thanks Luiz Barroso of PSR for several helpful discussions, but is solely responsible for all opinions and errors
Energy Modelling Research Group University of Canterbury

Why might diversification of reservoir management be a good idea?
What problems might arise when different managers control upstream/downstream reservoirs?
What mechanisms might address those problems?
How might an “Energy Storage Management” mechanism work?
EMRG

Other things being equal, diversifying management strategies delivers more robust outcomes:
 Because diverse managers are unlikely to all err in the same direction at the same time
(eg Tipping et al found that the NZ market manages reservoirs more conservatively than ECNZ)
Realistically this benefit must be traded off against losses if scale is too small or coordination too difficult
A particular problem arises if one manager controls the
“fuel supply” for a downstream competitor

EMRG

There will be a large store of energy in the upstream reservoir to which no clear property right exists
 The downstream generator has no physical ability to control its storage
 The upstream operator does not have appropriate incentives to control this storage, as it will only naturally consider the energy which it can itself generate from it.
The extent of the economic loss may be debated, but:
 The interests of the downstream generator, and ultimately of the nation, will not be properly recognised unless some kind of mechanism addresses this situation
EMRG

This situation is not uncommon overseas, and could be addressed by:
 A rule-based operating regime – inflexible?
 A competitive water market – single buyer/seller?
 Negotiated cooperation – collusion?
 An integrated over-arching “catchment management authority” or “independent coordinator”
– Adds another management layer
– Reduces competition and diversity
But how far can we go in developing a mechanism to allow truly independent management in this situation?
EMRG

The basic Energy Storage Management (ESM) concept discussed here assumes:
 Each party has a linear generation/release relationship
(ie each unit of water released produces the same amount of generation)
 The downstream party has enough flexibility to accommodate the upstream party’s requirements, without breaching minimum of maximum (utilisable) flow limits
We discuss relaxing these assumptions later
EMRG

We are looking for property rights which assign responsibility for the entire storage capacity of the system to parties who:
 Have appropriate incentives to manage that storage
 Can actually manage that storage in a way which aligns with their judgments with respect to probabilities and economic implications of events
 Can exercise those rights without infringing on the rights of the other party
 Can operate as independently as possible


Using a simple intuitive system representation
With “minimalist” coordination
EMRG

We use an “Energy Storage” representation of the system

As already happens within SPECTRA etc
Then decompose it between the two parties.

Creating “virtual energy storage reservoirs” to be called upon by each of the parties concerned
Each party can form its own judgment with regard to management of its own energy reservoir system.

Those differing judgments can be reconciled by swaps of energy, in each market dispatch interval.

This creates an “energy bank” of credit to be repaid at the discretion and timing of the other party.
EMRG

f f s
Pukaki s q
Tekapo g=1*q g=1*q w g=0*w f
Benmore g=1*q s q
Note: Waitaki energy conversion ratios are approximately r
1
= r
2
= r
3
= 1
EMRG

a=2f a=3f v=3s v=2s u = 2q g=u g =u g=0 f s u=q x = w g=u
EMRG

g
11
= u
11
a
11
= 1* f
1
V
11
= 1* s
11
X
11
= w
11
Let s
11
, u
11 etc be storage/flows etc
“proposed” by manager 1 based on its virtual energy model
EMRG
(Next, s
12
, s
22
, s
32
, and u
12
, u
22
, u
32 will be storage/flows “proposed” by manager 2 based on its virtual energy model)

a
12
= 2f
1 a
22
= 2f
2 v
12
=2s
12
Production reservoir system v
22
=2s
22 u
12
=2q
12 g=0 g
22
=u
22 a
32
= f
3 s u
22
= q
12 x
12
= w
12 g=0
Harvester reservoir system g
32
=u
32 waste
EMRG

Each manager runs its own optimisation:

Over the appropriate time horizons

Given its forecast of inflows and prices

Assuming the storage and flow capacities in its virtual model; and

The energy conversion coefficients of its system
This will produce a “proposed”, release and generation schedule for each party, which:

Will be in conflict

But can be reconciled by an energy swap
EMRG

Each proposes a pattern of release down all channels in its virtual model, implying:
 A pattern of generation from its (real) stations
 A pattern of storage levels in its (virtual) reservoirs
The parties should be indifferent to a “reconciled” schedule, provided:
 Each gets the generation it proposed to sell in the market in this interval


Each retains the energy storage it proposed at the end of the interval, in the (virtual) reservoirs where it wanted it, and can call on it in future, according to the model
The “reconciled” physical flows, and generation are physically feasible
EMRG

After generation offers are cleared in the market, a
“reconciled” schedule can be constructed where:


One generator generates
 more than it planned to
The extra
 is credited to the other generator, in the energy
 market
So the other generator can generate
 less
 So both sell exactly what they planned to sell
And both parties can be kept whole with respect to energy produced and stored provided :
 The
 credit is “banked” so that each generator has exactly what they planned to have in their virtual reservoirs.
EMRG

To get
 right we must:
 Make release from upstream reservoir the energy weighted average of the release proposed by the two generators, ie:
 q
T
= (q
TG
*r
G
+ q
TM
*r
M
)/(r
G
+r
M
)
This leaves energy stored in the downstream reservoir exactly as proposed by the downstream manager
 And energy stored in the upstream reservoir is the sum of the energy storage level proposed by the two generators
This is achieved by transferring the “energy credit” from one upstream virtual reservoir to the other
EMRG

DSO USO a
TM
= 2f
T v
TM
=2s
TM a
TG
= f
T v
TG
=s
TG g
TM
=0*q
TM g
PM
=2u
PM u
TM
=2q
TM v
PM
=2s
PM u
PM to Waste g
TG
= u
TG u
TG to
Waste
EMRG

Beginning of period position
(including expected inflows)
DSO
All variables are for (end of) current period v
TD USO
Store u
TD v
TU
Store u
TU generate g
TU
V
PD
Proposed generation
Store u
PD generate g
PD
EMRG

Beginning of period position
Proposed end of period positions v
TD
Upstream v
TU
?
These quantities must be respected
USO does NOT want to release/generate this corresponding amount from its energy storage g
TU
V
PD
Downstream
DSO wants to move this energy downstream (with no generation) from its energy storage
Compromise?
g
PD
EMRG

Balance flows
v
TD
(as requested by DSO)
Compromise flow v
TU
New Upstream
Energy Storage
(as requested by USO)
Release/Generate more g
TU
V
PD
New Downstream
Energy Storage
(as requested by DSO)
Swap in energy market
Back off release/generation g
PD
EMRG

DD minus 2… inflows have all dried up …
There are only 3 water units left upstream
That means 9 energy units in total
1 has 3 of them (ie its natural share so it has no credits/debits)
But 1 does not want to generate at all
2 has 6 of them
( again, its natural share so it has no credits/debits)
And 2 does want to generate 6 units
But 2 has no energy downstream
Oh dear it can not generate at all
Oh dear, oh dear, it can not induce 1 to generate because it has no generation which it can offer to back off downstream
Are we doomed?
EMRG

Nope, the end is nigh, but not yet … 2 can offer 6 units to the market because its virtual model lets it:


Release 6 energy units from 1 to flow downstream,
Then generate with them straight away
But getting 6 upstream energy units downstream implies releasing
3 water units, and producing 3 energy units along the way
1 does not want to generate, so the reconciled solution:
 Releases 2 water units from reservoir 1, then from reservoir 2
 Generates 4 energy units at 2 for 2
 Generates 2 energy units at 1 for 2
 Banks 2 energy units to be produced for 1, by 2 later
EMRG

DD minus 1:
2 now has no energy, upstream or downstream
So 2 can not propose any generation
There is now only 1 water unit left upstream
That means 3 energy units in total
1 has all 3 of them
And 1 now does want to generate 3 units
But it can only physically generate 1
Are we doomed now?
Nope….
The virtual model says it has 3 energy units, each of which will generate 1 electricity unit when passed through its virtual generator .
Physically it must:


Release 1 water unit and generate 1 energy unit itself
Have 2 generate 2 energy units (banked yesterday) on its behalf
EMRG

DD minus 0:
Now we really are stuck…




Both virtual reservoirs are empty
Neither party can call on any banked energy
Neither can offer any generation
Our clever tricks can do no more
….
But then there is no actual water, anywhere
….……..So its hardly surprising!
EMRG

virtual energy 2
Virtual spill of energy credits 2>1 full
Physical Spill full
Virtual Shortage 1 Diverse strategies reduce probability of extremes
Virtual spill of energy credits
1>2
Physical
Shortage empty empty Virtual Shortage 2
EMRG virtual energy 1

Overseas implementations typically require an independent coordinator to “optimise” compromise short/mid/long term schedules
But this ESM is just operates half-hourly ( much like current Waitaki “block dispatch” arrangements) :
 Clearing offers for each station individually
 Allowing dispatch re-arrangement to balance flows etc
 So long as total Waitaki generation commitment is met
 But accounting for energy credits to keep parties square when flows are re-balanced
EMRG

Parties and/or coordinator only need to verify:

Actual upstream inflow



Actual and forecast upstream flow/storage capacity
Enough generation capacity to support banked obligations
Actual (and possibly forecast) aggregate (marginal) conversion efficiency for other party
The parties need not:

Undertake any purchase/sale or valuation of energy/water

Reveal/agree forecasts of inflow, prices, or generation strategy
Preliminary investigation suggests that the consequences of any error/mis-representation can be made to fall naturally on the party making the error
EMRG

Upstream reservoir level is NOT a “compromise” in energy terms:
 Each party always has the energy storage level implied by its water valuation/strategy


So energy stored is the total of these two
But lake (water) levels naturally equalise to a “weighted average” level
Upstream water release is also a weighted average
 So it always lies within generation/flow capacity bounds
Downstream release bounds may be more problematic
 And accommodating USO can still restrict DSO
EMRG

This basic ESM allows the DSO to develop a reservoir balancing strategy that helps it manage upper/lower flow (utilisable) limits downstream
But it assumes no obligation or incentive for the USO to assist with this task
 Downstream flows do not even appear in its virtual model
It seems conceptually possible to extend the USO’s virtual model to include downstream flow obligations
 Each party would then manage its specific (asymmetric) responsibilities across the whole river
 Somewhat like Bonneville Power, which gives each party control of a virtual (symmetric) slice of the whole system
EMRG

Consequences of upstream waste / by-pass / extractive use fall naturally on appropriate parties
Generation efficiency curves can be handled, but accounting rules must assign responsibility for losses/gains appropriately
Real-time unit coordination is another issue where coordination may increase efficiency
“Energy” swaps may need adjustment for transmission losses/constraints
Ancillary services have not been accounted for
EMRG

Allows competitive independent operation, and a
“second opinion” on water value, where:

Each party forms and acts on its own view with respect to the energy resource it is responsible for

Scarcity pricing incentives to maintain national energy security feed back though each optimization model, as in
SPECTRA

Each party gets to sell and store the energy it considers optimal, according to its objectives

Reservoir storage balance is managed (indirectly) by the party to whom it matters
EMRG

Provides a framework within which:


Efficient utilisation of water resources can be preserved, in large part, as for integrated operations
Especially if the parties can agree on a suitably flexible implementation that:

Allows the benefits physically available from a broader portfolio of storage/flow/generation capacity in the catchment to be realised

And allows those benefits to be fairly apportioned
But it probably should extended so upstream party faces more responsibility for downstream flows
EMRG