Estimating the Economic Value of Interannual Reservoir Storage in Water Resource Systems

Abstract

AbstractReservoir operators face pressures on timing releases of water. Releasing too much water immediately can threaten future supplies and costs, but not releasing enough creates immediate economic hardship downstream. This paper examines how the economic valuation of end‐of‐year carryover storage can lead to optimal amounts of carryover storage in complex large water resource systems. Economic carryover storage value functions (COSVFs) are developed to represent the value of storage in the face of interannual inflow uncertainty and variability within water resource optimization models. The approach divides a perfect foresight optimization problem into year‐long (limited foresight) subproblems solved sequentially by a within‐year optimization engine to find optimal short‐term operations. The final storage state from the previous year provides the initial condition to each annual problem, and end‐of‐year COSVFs are the final condition. Here the COSVF parameters that maximize the interannual benefits from river basin operations are found by evolutionary search. This generalized approach can handle nonconvexity in large‐scale water resources systems. The approach is illustrated with a regional model of the California Central Valley water system including 30 reservoirs, 22 aquifers, and 51 urban and agricultural demand sites. Head‐dependent pumping costs make the optimization problem nonconvex. Optimized interannual reservoir operation improves over more cautious operation in the historical approximation, reducing the average annual scarcity volume and costs by 80% and 98%, respectively, with more realistic representation of hydrologic foresight for California's Mediterranean climate. The economic valuation of storage helps inform water storage decisions.