2011 8th International Conference on the European Energy Market (EEM) 25-27 May 2011 Zagreb, Croatia

Short term power system planning

with water value and energy trade optimisation
Marin Cerjan#1, Danko Mari#2, Marko Delimar*3
#

HEP Trgovina d.o.o

Ulica Grada Vukovara 34, Zagreb, Croatia
1
2

marin.cerjan@hep.hr
danko.marcic@hep.hr

*
University of Zagreb
Faculty of Electrical Engineering and Computing
Unska 3, Zagreb, Croatia
3

marko.delimar@fer.hr

AbstractThis paper emphasises the importance of a well

planned unit commitment model in coordination with

water value evaluation to achieve optimal economic results
for genco. The existing water value models are examined
and customized for the developed power system model.
Linear programming methods are used to achieve optimal
economic performance for hydro and thermal power
plants production and the power exchange is calculated.
Several scenarios of short term planning with emphasis on
water value and power market exchanges are presented.

day of the week. There is a common agreement that the air

temperature is the most important weather influence [4]. This
correlation for the Croatian power system model is illustrated
in Fig.1.

Index Terms water value, economic dispatch, power system

planning

I. INTRODUCTION
Electricity utilities have been undergoing radical changes
with process of deregulation and changes in their market and
regulatory structure. Basic idea is to promote competition on
energy market which should lead to lower prices and result in
higher investment and technology progress. In most cases, the
restructuring process has replaced traditional expansion
planning and operation procedures based on centralized
optimization by market-oriented approach.
Today, many different models can be found in power
system planning which are classified according to the
planning horizon. Long-term planning models deals with
investment typically over a 15-20 year horizon. Medium term
planning is done over 1-3 year range and deals with reservoir
management, while short term planning which deals with
problems such as consumption forecasting, unit commitment
and economic dispatch has horizons of one month or shorter.
[1]
Decision making in the energy sector has to be based on
accurate forecasts of the load demand. Forecasts of different
time-horizons are needed for the operation of power plants
while the system response follows closely the load
requirement. Most developed is short-term forecast which is
influenced by the weather conditions, seasonal effects and the

978-1-61284-286-8/11/$26.00 2011 IEEE

Fig.1. Daily consumption and average temperature for the Croatian

power system model

There are many methods in short-term forecasting such as

classical time series and regression methods [2] time series
models [3], artificial intelligence and computational
intelligence methods [4] hybrid and other approaches [6].
Performance of a certain method can be evaluated by absolute
mean percentage error (MAPE) where yt is real value at time t,
ft forecast at time t of period T. MAPE for some advance
models is lower that 2 % .

MAPE =

100
T

yt ft

t =1

yt

[%]

(1)

Economic dispatch is the process of allocating the required

load demand between available generation units and energy
market such that the cost of operation is at the minimum. It is
usually used in combination with unit commitment and hydrothermo coordination.

269

2011 8th International Conference on the European Energy Market (EEM) 25-27 May 2011 Zagreb, Croatia

Water value can be determined with variable cost of power

system production and market price. It's usually defined
trough marginal cost under given time interval as alternative
value for reducing production of thermal power plants or
energy import. [14]
For last few years we have witnessed high price volatility
on EPEX which appears primarily from increased share of
renewable energy source, especially wind. Problem in
planning of wind production is to estimate the moment in
which the wind will appear, and with a large share of installed
wind power, large energy production in short time period can
create big impact to the energy system, making energy
surpluses which usually end on power exchange.
Increase of wind production can reduce electricity prices on
energy exchange, as shown in Fig. 2. This is more significant
[11] in systems which have a high proportion of thermal unit
that are characterized by high cost during the suspension. In
circumstances of high wind power production it is cheaper to
sell surpluses on energy exchange (even for negative price for
few hours) that suspension thermal production facility.
Such situation gives great opportunity for flexible power
system such as Croatian to reduce hydropower on days with
low energy price to buy energy, and to increase it again in
days when the price of electricity is high. Because of the high
liquidity on EPEX it is always possible to trade physical
energy due to the good connection over auction office for
allocation transmission capacity.

The scheduling problem is to determine the power plant

combination that minimizes the total fuel cost required to
meet the system load

(4)

subject to
(5)
(6)

z(t), c, d(t), g(t) and g represent respectively the system

operating cost in stage t, unit operation costs, system load,
power production and generation capacities.
Hydro power plants can use the energy stored in their
reservoirs avoiding fuel expenses with thermal unit. The
availability of hydro energy is limited by reservoir storage
capacities. The major decision point in hydro scheduling is to
release water in such way that the immediate financial gain
equals the expected future value of water. The expected future
value of water is presented as a function of reservoir level,
present inflow and time. Water value is a long-known concept
that dates back to 1960s developed for Swedish power system
[7][8]. For hydro planning problems stochastic programming
has been used for a long time. First models were developed in
early 1980s.[15],[16] Pereira presents his model of hydro
operation cost as a function of future reservoir level Fig. 3.
The immediate cost function ICF is related to thermal
generation costs in stage t. As the final storage increases
consequently and less water is available for energy production
in the stage, as a consequence, more thermal generation is
needed, which increase the immediate cost. In turn, the future
cost function FCF that is associated with the expected thermal
generation expenses from stage t+1 to the end of the planning
period, is low because more water will be available for the
future cheap hydro generation.

Fig. 2. The impact of wind power on the spot power price in the West
Denmark power system

II. EXISTING WATER VALUE MODELS

Operating cost of each thermal power plant depends
basically on its fuel cost. Therefore, thermal plants are
represented by their unit operating cost {cj, j=1,...n} (/MWh)
and their generation limits:

for

j=1,...n

(3)

where:
Fig. 3. Immediate and Future Costs versus Final Storage


- maximum generation capacity of plant j

270

2011 8th International Conference on the European Energy Market (EEM) 25-27 May 2011 Zagreb, Croatia

The FCF is calculated by simulating system operation in the

future for different starting values of initial storage and
calculating the operating costs [16].
In a deregulated setting, spot market price becomes
important input to power scheduling models. Optimization
problem gains a new dimension while system is scheduled in
accordance to market circulation. A generating company
basically has no other objective than to produce electricity at a
low price and sell with maximum profit. This leads to the
following problem: how to forecast future market price but
also at the same time follow proper reservoir management? In
the Norwegian case analysis of the price scenarios it is shown
that the market price for each week strongly depends on the
price in foregoing week. In order to use an optimization
algorithm based on dynamic programming one of models is to
use simple autoregressive model. [13], [14]
 

scenarios describe events with approximately 30 % possibility

of large and low water inflow, and the statistically the most
possible event as well.
TABLE I
CHARACTERISTICS OF GENERATION UNITS
USED IN THE SIMULATED POWER SYSTEM

III. SIMULATED POWER SYSTEM MODEL

In this paper observed power system is modelled after
Croatian with all the necessary similarities. Balance ratio
between hydro and thermal production is proportional.
Permanent economical development and increased
consumption throughout the last 20 years was not followed by
the appropriate deployment of new power generation utilities
which resulted in raising demand for the electrical energy
import that has reached roughly 30 % of total energy
consumption, according to the UCTE [17].
For the simulation purpose of price model calculation,
imaginary power system will be observed that has similarity
with Croatian power system in the way it is shaped in
approximately 50% decreased compared to the real one. That
system will consist of six hydro power plants and five thermal
power plants presented in Table 1.
Prior all the necessary calculations are performed the
plans objective has to be established by creating the global
medium-term plan for year ahead power system performance.
The principal of plan making is well settled approach that has
proved to be successful through the years achieving best
engineering and economical performances out of the power
system. Due to the large share of hydro power plants, power
system optimization depends a lot on the weather events and
the amount of precipitation, so the most important is future
reservoir water inflow. Since there are no accurate weather
forecasts for period of one year all forecasts are based on
statistical evaluated data for last 30 years. On the basis of
processing and analysing historical data come the results
which are described in three possible scenarios. These

Type

Fuel

Min Power [MW]

Max Power [MW]

HPP1

Run off Hydro power plant

Water

50

Water

35

215

Water

10

20

Water

15

50

Water

40

240

Water

60

480

HPP2
HPP3
HPP4
HPP5
HPP6

(7)

 

 



Name

Hydro power plant with

reservoir
Hydro power plant with
reservoir
Hydro power plant with
reservoir
Hydro power plant with
reservoir
Hydro power plant with
reservoir

TPP1

Thermo power plant

Crude Oil

110

250

TPP2

Thermo power plant

Crude Oil

100

180

TPP3

Thermo power plant

Gas

20

50

TPP4

Thermo power plant

Nuclear

250

400

TPP5

Thermo power plant

Coal

110

190

Generation of hydro power plants and reservoir

management are defined, as well as thermo power plant
production and energy exchange at the end. Croatian power
system is throughout the most part of the year exposed to
power exchange. This comes from the characteristics of
energy consumption curve where the difference between
minimum and maximum hourly load can be close to 100 %
which requires a large scale of flexible production capacity.
Short term system planning applies from day to month system
planning. Through this part of the planning middle-term
planned dates are corrected regarding accurate weather
forecasts for energy consumption and weather evaluation as
well as the market fluctuation for coming time period
IV. CALCULATING WATER VALUE
When assessing the cost of production it is necessary to
define fixed and variable costs. Their individual significance
is depending on the proportion of each cost. That means, with
increase of utilized capacity fixed cost are declining and
variable increasing. This pattern in theory of costs is known as
the principle of mass production and is expressed with
following formula. [18]



(8)

total average cost

total fixed cost
production quantity
total variable cost

Variable cost of thermo power plant is characterised by a

specific heat rate curve which defines necessary heat energy

271

2011 8th International Conference on the European Energy Market (EEM) 25-27 May 2011 Zagreb, Croatia

for producing one unit of electrical energy H(P). Multiplying

it with power produced, fuel price coefficient and fuel caloric
value the fuel cost curve C(P):



(9)



(10)

  (11)

where





Additional costs such as start up allocation, fuel limits
allocation or environmental cost of polluting can be also
involved in function cost coefficient making them dependable
on produced energy.
Water value is calculated deterministic with function fc (P)
shown in Fig. 4.




where:

(12)






In case of under plan, price is higher and in case of over plan

price is lower. Water value is evaluated for base load, which
means that the water value is same for all 24 hours a day. This
gives an option to produce energy only in peak hours which
are the most expensive on energy market.
Simulated hydro power plans reservoirs have an annual
cycle. There is a very intensive hydrological period (early
winter and late spring) which is ideal for filling the reservoirs,
and dry hydrological period (late spring to late fall) during
which stored water can be used for additional energy
production.
Price of produced energy from run-off hydro power plants
is calculated separately. Water inflows that occur must be
used immediately or in a very short time because usually
continues flow plants have daily flow reservoirs. If the inflow
is lower that max these power plants can be optimised by
producing energy in the most expensive hours. In simulation
model, continuous flow power plant have daily reservoir
capacity not bigger than maximum daily production of power
plant.
After setting prices for energy production for simulation
model next step is system production optimization. For power
plant optimization, linear programming is used with duration
load curve for hourly optimization of power plants production.
Linear programming is an optimization procedure that
minimizes a linear objective function with variables also
subject to linear constrains. In this case the objective function
that gives the best representation of observed problem is:
(13)

If system requires additional power P, it can be bought from

market, produced from thermal power plant or produced from
hydro power plant with reservoir. Optimal production is
projection of long-term reservoir management planned and
forecasted inflow balanced with thermal power plant
production. In ideal case where planned reservoir level is
equal to real reservoir level water value is equal to minimum
replacement value of thermo power plant or average market
price for last 5 days.

where:

Operating cost in stage t






This function could also be written in more simplified way in
order to be more under stable:

(14)

where




Fig. 4: Water value in dependence of reservoir level and water inflow

272

2011 8th International Conference on the European Energy Market (EEM) 25-27 May 2011 Zagreb, Croatia

Certain constrains that have to be taken into account are:

(15)

Where  represent, such as in formula, (13) production

coefficient of reservoir i after time period t. This value has to
be smaller or equal as the desirable stage of the reservoir i
after the period of time This will result in optimal
water value based on stochastically assumed inflows after
each computed period of time.
( 16)
Equation (16) states that at each period of time sum of
power production and energy exchange has to be equal the
planned load.
The optimization criterion that has to be satisfied in order to
achieve the maximum financial output from system is:


(17)

V. SIMULATION RESULTS
All calculations and forecasts are simulated in Microsoft
Excel using Visual Basic and Solver function for linear
programming.
It is important to emphasize the limitations which are used
during simulation:
for run-off hydro power plant all daily inflow is used
for production at the same day
all hydro plants with reservoir are not combined in
cascade
error of daily load forecasts and water inflow is
negligible
import is limited to 500MW
export is limited to 500MW
nuclear power plant is planned to run all the time
no limitation in power grid
Here are presented simulation results for two specific
cases through year. First is simulation for forth week of 2009
in which the hydrology was very strong and the reservoir level
high through longer wet period before that. In second case
reservoir level is a 6% lower than planned and the water
inflows were lower that planned. Here is shown the full
potential of water value optimization.

A. Case 1 - Winter period

First simulation was made for period from 19.1.-25.1.2009.
As mentioned before winter 2008/2009 was rainy from the
beginning of the December so the reservoir level was very
high at the observed period. Interesting for that week was high
increase of inflows which at the peak on 24.1 were 200 %
higher then planned. Storing additional water was impossible
considering the current reservoir level in correspondence with
statistical raising inflow prediction

Fig. 5. Simulation result for Case 1

All this circumstances affected the water value which were

lower that energy exchange so hydro power plants were
planned for maximum production and all surpluses were sold
on market, Fig. 5.

B. Case 2 - Summer period

Second simulation was made for the period from 13.7.2009 to
19.7.2009. Energy consumption was high, reservoir level 6 %
lower than planned and water inflows 50 % lower than plan.
This was very hot and dry period of the summer.
Consumption was high not only in Croatian but whole Europe
so the energy prices were rising for this whole week.
Calculated water value was greater than average base load but
lower that peak hours. That principle leads to buy cheaper
energy on energy exchange for first three day and to produce
maximum at our peak load. Also high price weekend on
power exchange create great opportunity for system to
produce addition surpluses and sell it on power exchange and
to compensate high volume which were bought for first three
days. Results of simulation are shown on Fig 6.

273

2011 8th International Conference on the European Energy Market (EEM) 25-27 May 2011 Zagreb, Croatia

coordination with a goal to achieve optimal economical

performances of the simulated power system. It is interesting
to note that this kind of market oriented behaviour is very
untypical for conservative and monopolistic power system
such as Croatian whose primarily goal is still minimizing the
operating costs.
It is important to mention that all simulations were done
on a simplified model in order to achieve achievable
computing performance time. For further calculations it is
possible to implement a more realistic system topology with
cascading hydropower plants whose water balance is fare
more complex considering the inflow delay time, or more
detailed modelled reservoirs that are perhaps permeable. This
would require an application of a new simulation model for
cost analysis because the number of constrains and new
parameters would increase.
When applying this model on a real systems, system
specific parameters based on system specific technical
characteristics should be taken into account as well as
environmental and socio-economic limitations.

Fig. 6. Simulation result for Case 2

Results for Case 2 are quite interesting because system

performance and management during this time in reality was
done different considering the high consumption and
statistically predictable dry period.
VI. CONCLUSION
In this paper the formulation of water evaluation model for
hydro power plants with accumulation was presented. Water
value was evaluated for every day separately taking into
account long term plans for reservoir management, prices of
other power plants in the system and prices on energy
exchange. Estimation models for water evaluation have been
developed quite intensively over the last twenty years and
their implementation significantly varies depending on the
unique geographic position of each country, its production
capacities and energy exchange accessibility.
This leads to liability, where with flexibility of hydro
power plants production, price volatility on power exchanges
can be used to make a great economic benefit for an energy
company. This is best shown on Fig 6. Simulations were made
on simplified model of the Croatian power system, and
satisfactory results were obtained for hydro-thermo

REFERENCES
[1] Olav B. Fosso Optimal Hydro Scheduling, Dept. of Electric
Engineering NTNU, pg.18
[2] Elias Kyriakides, Marios M. Polycarpou: Short Term Electric Load
Forecasting: A tutorial, 2007
[3] Bruhns, A., Deurveilher, G., Roy, J.-S., A non linear regression model
for mid term load forecasting and improvements in seasonality, 15th
Power Systems Computation Conference, 2005
[4] Hippert, H.S. Pedreira, C.E., Souza, R.c., Neural network for short
term forecasting: A review and evaluation. IEEE Transactions on
Power System 16 (1), 44-55, 2001;
[5] Tran, C.N., Park, D.-C., Choi, W.-S., 2006. Short-term load forecasting
using multiscale bilinear recurrent neural network with an adaptive
learning algorithm. In: King, I. et al. (Eds.), Thirteenth International
Conference on Neural Information Processing (ICONIP 2006), LNCS,
vol. 4233. Springer, pp. 964973.
[6] Wang, J., Zhou, Y., Chen, Y., 2007. Electricity load forecasting based
on support vector machines and simulated annealing particle swarm
optimization algorithm. In: Proceedings of the IEEE International
Conference on Automation and Logistics, pp. 28362840.
[7] L.K. Kirchamayer, Economic Operation of Power Systems, New
York: Wiley, 1958
[8] S. Stage, Y. Larsson: Incremental Cost of Water Power, Power
Apparatus and Systems, Part III. Transactions of the American Institute
of ElectricalEngineers, 80-3, August 1961.
[9] J. Lindqvist: Operation of a hydrothermal electric system: a multistagedecision process. Power Apparatus and Systems, Part III.
Transactions of the American Institute of Electrical Engineers,81-3,
April 1962.
[10] Yan Zheng Economic Dispatch Revisited Influence of Market on
Power Plant Behavir-, Department of Electrical Engineering, Shanghai
Jiao Tong Univesitiy, 2007
[11] http://www.ewea.org/fileadmin/ewea_documents/documents/publicatio
ns/reports/MeritOrder.pdf, 18.01.2011
[12] Ranko Goji, Koncepcija modela voenja i optimiranja HES-a Cetine,
FESB, 2004
[13] Olav B. Foso, Anders Gjelsvik, Arne Haugstad, Birger Mo, Ivar
Wangensteen: Generation scheduling in deregulated system. The
Norwegian case, IEEE Transaction on Power Systems, Vol 14,
No.1,1999
[14] A Gjelasvik, S.W. Wallace : Methods for stochastic medium term
scheduling in hydro dominated power system, Technical report A4438,
Norwegian Electric power Research Institute, Trondheim, Norway
[15] A. Ruszczyski and A. Shapiro, Eds., Handbooks inOR MS, Vol. 10,
Chapter 10, Stohastic Programming models in Energy, Elsevier Scince
B.V., 2003
[16] Mario Pereira Nora Campodnico Rafael Kelman, Long-term Hydro
Scheduling based on Stochastic Models, EPSOM98, Zurich,
September 23-25, 1998
[17] https://www.entsoe.eu/fileadmin/user_upload/_library/publications/ce/
Statistical_Yearbook_2008.pdf, pg.48
[18] Paul A. Samuelson & William D. Nordhaus (1992): Ekonomija 14.
edition, MATE d.o.o. Zagreb

274