The economic cost of hydropower environmental constraints under decreasing price volatility

Abstract

AbstractHydropower operation optimization in river systems involves market prices, technological constraints affecting the efficiency of turbines, and flow constraints set by an environmental regulator. Comprehensive environmental flow regulation includes the ecological state of a river system and the impact on hydropower value. This article studies the impacts of environmental constraints on hydropower value under varying electricity price volatility scenarios. The effects of maximum flow, minimum flow, and flow ramping constraints are studied analytically and quantitatively. We frame the lost hydropower value as the economic cost of these constraints. We show that the economic costs of the environmental constraints decrease with lower price volatility. We use a marginal cost and marginal benefit framework to illustrate that the optimal flow constraint should be tightened if the price volatility decreases in the electricity market. Our approach illustrates how electricity price volatility influences the analysis of optimal environmental constraints in regulated river systems. Finally, we analyse the effect of different environmental flow release options in fishways on the economic cost of a fishway. If the hydropower operator can optimize the fishway flow allocation, then the loss in hydropower value is lower than under a constant fishway flow.