A hydrothermal coordination model for electricity markets: theory and practice in the case of the Greek electricity market regulatory framework

Abstract

The generation portfolio of the Greek Mainland Electricity System mainly consists of various types of thermoelectric (using fossil fuels: natural gas and lignite) as well as hydroelectric units (impoundment, pumped storage, run of river). Regarding their fuel consumption, thermoelectric units have a large variable cost compared to hydroelectric, which is almost zero, as derived by their advantage of fueling their operation with water. Moreover, as fossil fuel price variation does not correlate to water’s value a significant trade-off is created. Due to that trade-off the use of energy sources (natural gas, lignite or water), without consideration of cost minimization, may always lead to waste and to significant losses. Demand’s variation along with its sudden peaks, as well as the uncertainty of water availability, impose the use of a specialized mathematical model for the optimal handling of the generation portfolio. Load cover should be achieved by a non-constant portfolio over time, of hydro and thermals, coordinated by an algorithm in such a way as to achieve cost minimization. The main target of such a model is the normality of operation, safeguarded by specific technical, operational and economic constraints fulfilling the objective of cost minimization. Optimization of this type can be characterized as hydrothermal coordination problem, which in our case takes the form of a Mixed Integer Programming Model. The innovative character of this model, is that in a time efficient way, it finds the optimal solution, while keeping complexity at very low level, forcing hydroelectric units to maximize production at the peaks of the load, when marginal cost of thermal’s is at the highest point, making the most economical utilization of water resources. Such an algorithm while it achieves significant economies regarding the cash flows and the fuel-quantities (fossils, water for agricultural purposes), delivers heavy support to management for market policy and operational decision-making.