Long-term Uncertainty of Hydropower Revenue Due to Climate Change and Electricity Prices

Abstract

Hydropower represents the world's largest renewable energy source. As a flexible technology, it enhances reliability and security of the electricity system. However, climate change and market liberalization may hinder investment due to the evolution of water runoffs and electricity prices. Both alter expected revenue and bring uncertainty. It increases risk and deters investment. Our research assesses how climate change and market fluctuation affect annual revenue. But this paper focuses on the uncertainty, rather than on forecasting. This transdisciplinary topic is investigated by means of a mixed method, i.e. both quantitative and qualitative. The quantitative approach uses established models in natural sciences and economics. The uncertainty is accounted for by applying various scenarios and various datasets coming from different models. Based on those results, uncertainty is discussed through an analysis discerning three dimensions of uncertainty. Uncertainty analysis requires the assessment of a large panel of models and data sets. It is therefore rarely carried out. The originality of the paper also lies on the combination of quantitative established models with a qualitative analysis. The results surprisingly show that the greenhouse gas scenarios may in fact represent a low source of uncertainty, unlike electricity prices. Like forecasting, the main uncertainties are actually case study related and depend on the investigated variables. It is also shown that the nature of uncertainty evolves. Runoff uncertainty goes from variability, i.e. inherent randomness, to epistemic, i.e. limitation of science. The reverse situation occurs with the electricity price. The implications for scientists and policy makers are discussed.

Assessing Climate Impacts on Hydropower Production: The Case of the Toce River Basin

“…For instance, [50] provide a sensitivity analysis to some price parameters for an alpine hydropower plant. Reference [51] makes an analysis of uncertainty for future hydropower revenue brought by climate change and electricity prices. Some research looks at decision making under deep uncertainty and argues for increasing robustness rather than relying on scenarios [52].…”

Simulation and Regulation of Market Operation in Hydro-Dominated Environment: The Yunnan Case

“…The depreciation costs and maintenance costs of each station are usually calculated based on its fixed assets and can be regarded as fixed costs. Salaries and other costs are calculated based on generation and can be regarded as operating costs, but they are usually too small for the profit analysis (less than 0.01 RMB/kWh), so they can be neglected when modeling their profits for simplicity [17]. The profit-maximizing objective for giant cascaded hydropower stations during multiple trading periods can be expressed as:…”

“…analysis (less than 0.01 RMB/kWh), so they can be neglected when modeling their profits for simplicity [17]. The profit-maximizing objective for giant cascaded hydropower stations during multiple trading periods can be expressed as:…”

Study of the drivers and asset management of pumped-storage power plants historical and geographical perspective

“…Like for most European PSP assets, the economic viability of current and projected Swiss PSP plant is threatened by the current low electricity prices [112,113]. The situation is even more critical in Switzerland due the government's decision to phase out nuclear plants, as this means PSPs will lose their original purpose.…”