Hydropower Value Drivers

Abstract

Conventional hydro resources generate the majority of their value by providing energy under most conditions, but the relative fraction of value generated by providing ancillary services and capacity increases with increasing penetration of resources with zero fuel costs. Pumped storage hydropower resources generate the majority of their value by providing capacity under most conditions, but the relative fraction of value generated by providing energy increases with increasing penetration of resources with zero fuel costs. The total value of conventional hydropower generally decreases in systems with increasing penetration of resources with zero fuel costs; this is largely due to the associated decrease in average energy prices. The total value of pumped storage generally increases in systems with increasing penetration of resources with zero fuel costs, largely due to opportunities to operate in pumping mode when energy prices are low or even negative. Energy storage representation must be enhanced to ensure that models accurately capture system value streams for these resources. Current power system models have a limited ability to capture the price dynamics of ancillary services, and it is still challenging to assess the role and magnitude of ancillary service value streams in future systems. Power systems are currently in a state of rapid and dramatic evolution due to a number of different factors, including the increasing penetration of variable renewable energy (VRE) sources, such as wind and solar, and battery energy storage systems (BESS). This evolution will change the way power systems are fundamentally planned and operated. Some of these changes may be incremental, while others may be more significant, but the result will likely be parallel evolution in the definition and requirement of different grid services and therefore a subsequent shift in their relative values. This report presents a framework developed to identify such system value drivers and quantify their relative impact on several different value streams, with a specific focus on implications for conventional hydropower and pumped storage hydropower (PSH) resources. This value drivers framework (VDF) encompasses five core analytical steps: 1. Identify potential drivers and develop scenarios, 2. Execute production cost models, 3. Calibrate prices, 4. Optimize hydropower operations, and 5. Quantify value drivers.