Abstract
AbstractThis paper describes a risk management tool for hydropower generators and its application to Norway's second‐largest generation company and largest electricity consumer, Norsk Hydro ASA. The tool considers both operations scheduling and the utilization of financial contracts for risk management. Financial risks are accounted for by penalizing incomes below a reference income. The risk management problem is solved by a combination of stochastic dual dynamic programming and stochastic dynamic programming. Simulations demonstrate that lower income scenarios improve when risk aversion is introduced. Copyright © 2005 John Wiley & Sons, Ltd.
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