managing uncertainty in generation, inventory and revenue
DESCRIPTION
Managing Uncertainty in Generation, Inventory and Revenue. January 23, 2011 AMS Meeting AMS SHORT COURSE: HYDROLOGIC PREDICTION AND VERIFICATION TECHNIQUES WITH A FOCUS ON WATER SUPPLY. Introduction to the Federal Columbia River Power System and the Bonneville Power Administration. - PowerPoint PPT PresentationTRANSCRIPT
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Managing Uncertainty in Generation, Inventory and Revenue
January 23, 2011 AMS Meeting
AMS SHORT COURSE:HYDROLOGIC PREDICTION AND VERIFICATION TECHNIQUES
WITH A FOCUS ON WATER SUPPLY
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Introduction to the Federal Columbia River Power System and the Bonneville Power
Administration
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Federal Columbia River Power System
► The key federal agencies: The US Army Corps of Engineers The Bureau of Reclamation The Bonneville Power Administration
► The major physical assets: 31 federal hydro-electric power plants Columbia Generating Station (Nuclear Power Plant) The federal high voltage transmission system
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Federal Columbia River Power System
► The US Army Corps of Engineers and the Bureau of Reclamation operate the federal dams for multiple public purposes: Flood Control Navigation Fish protection operations (Endangered Species Act, Clean Water Act) Recreation Power production
► BPA’s Role Markets the power produced from the federal dams within the
constraints and requirements for other river purposes Primary high-voltage transmission provider in the Columbia River
Basin
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Federal Columbia River Power System
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Federal Columbia River Power System
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FCRPS Annual Operations Cycle
► July – August: Draft the system to augment flows supporting the downstream migration of juvenile fish.
► September – October: Operate the system to prepare for Fall fisheries operations at Lake Roosevelt, Vernita Bar, and downstream of Bonneville.
► November – December: Provide hydraulic conditions for Chum, Fall Chinook, and Kokanee spawning. Meet Winter flood control requirements at Libby and Dworshak.
► January – April: Draft the system for flood control while supporting protection elevations for Chum and Fall Chinook.
► May – June: Refill the system on the Spring freshet.
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BPA’s Modeling Process
Realizing Uncertainty in Generation and Energy Inventory
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BPA’s Generation Modeling System
► HYDSIM – A hydraulic simulation model that provides the underlying flow and elevation targets for HOSS, the higher resolution generation shaping model
► HOSS – An hourly operations and scheduling simulator that takes the output from HYDSIM and provides hourly generation shaping for the hydro projects
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BPA’s Generation Modeling System► Inputs:
Hydraulic objectives Project constraints Streamflow scenarios Hydro unit availabilities Load obligations
► Outputs Generation distributions
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Hydraulic Objectives and Project Constraints
► Hydraulic objectives: Flood control Fisheries operations Navigation requirements Recreational interests Special operations
► Project constraints Physical plant characteristics
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Ensemble Streamflow Prediction
► Ensemble of traces initiated with current basin conditions Soil moisture Snowpack
► Perturbed with historical meteorological sequences
►Generates a distribution of possible future streamflow scenarios
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Ensemble Streamflow Prediction
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Realizing Uncertainty in Electricity Generation
► Given the large amount of uncertainty in streamflows there is often a large range of possible hydro generation
► The following example shows the possible combined lower Snake River generation ranging from as low as 500 aMW to as much as 2,600 aMW in June
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Generation Distributions
June 2010 Average Lower Snake River Project Generation(study created towards the end of previous water year)
0
100
200
300
400
500
600
700
800
900
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Cumulative Probability (by ESP traces)
Aver
age
Gen
erati
on (a
MW
)
Lower Granite Little Goose Lower Monumental Ice harbor
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Uncertainty Diminishes Over Time
ESP Distributions of Dworshak Inflows for June 2010Through a Series of Six Studies, Over the One Year period Prior to June
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Cumulative Probability
Inflo
w (K
CFS)
12 Months Out 6 Months Out 4 Months Out2 Months Out 1 Month out Within Month
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BPA’s Energy Inventory Modeling System
► Inputs: Hydro generation distributions Thermal generation distributions Load obligation distributions
► Outputs Energy inventory distributions
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Energy Inventory DistributionsMonth A - Month C, Heavy Load Hour Inventory Projections
(includes forward marketing to date)
-5000
-4000
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Cumulative Probability (by water/hydro generation, thermal generation, load uncertainty)
Aver
age
Positi
on (a
MW
)
Month A Month B Month C
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Realizing Uncertainty in Energy Inventory
► Given the large amount of uncertainty in all of the modeling inputs, especially streamflows, there is often a large range of possible energy inventory for any given future time period
► In the previous example: -800 aMW < Month A Inventory < 4,000 aMW -3,000 aMW < Month B Inventory < 2,800 aMW -4,000 aMW < Month C Inventory < 1,300 aMW
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Using the Marketplace
Managing Uncertainty in Energy Inventory and Power Marketing Revenue
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The West Power Market
► Electricity is a commodity
► Electricity markets, like other markets, are influenced primarily by supply and demand
► To understand electricity markets one must understand where generation comes from (supply), how much electricity is needed (demand), and how does the electricity get from the generator to the customer (transmission).
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The West Power Market
The Western Interconnection
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The West Power MarketThe Western Interconnection
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The West Power Market
How is electricity generated?
► Thermal Power Plants Coal Natural Gas Nuclear Biomass
► Hydro Power► Wind Power
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The West Power Market
How is electricity consumed?
► Residential customers (e.g. light bulbs and toaster ovens)
► Commercial sector (e.g. businesses)
► Industrial sector (e.g. manufacturing, metal smelting)
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The West Power Market
Who trades power in the West?
►Utilities► Power marketers► Investment banks►Oil companies►Hedge funds
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The West Power Market
What are the products?
► Physical power Yearly strips Quarterly pieces Monthly pieces Balance of month pieces Daily and hourly products
► Future options to buy or sell power
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The West Power Market
How are the various products traded?
► The Intercontinental Exchange (ICE), an anonymous electronic trading platform that works something like eBay. Traders are able to submit and strike, bids and offers
► SIBR for the California ISO (similar to ICE)
► Brokers, a third party that arranges transactions for a commission
► Old fashioned phone calls between buyers and sellers
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Probability Management and Hedging Risk
Given large amount of uncertainty in future inventory,what risks must be realized and managed?
► Market liquidity: It is unknown how much depth will exist in the balance of month, daily, and hourly markets
► Price volatility: Considering the uncertainty in natural gas prices, thermal unit outages, hydro generation, available transmission, and regional demand for electricity, future power prices are difficult to predict
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Probability Management and Hedging RiskProjected Supply/Demand Equilibrium
26.75, 39.55
0
20
40
60
80
100
120
140
160
180
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35Thousands
MW
Mar
gina
l Cos
t ($
/ M
Wh)
Hydro Other Renewable Natural Gas Coal Petrol Other NW Load Total Load Wind Geo Nuc MW, Price
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Probability Management and Hedging Risk
Forward Price DistributionsCreated Winter 2009
$0
$20
$40
$60
$80
$100
$120
$140
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Cumulative Probability (by supply and demand)
Heav
y Lo
ad H
our P
ower
Pric
e
Jan-10 Apr-10 Aug-10
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Probability Management and Hedging Risk
There is a tremendous amount of uncertainty in the power business
► Streamflows, water supply, and hydro generation► Weather and temperature departures► Thermal generation and thermal unit outages► Available transmission and system congestion► Demand for energy► Coal, natural gas, and electricity prices► Market liquidity
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Probability Management and Hedging Risk
How is all of that uncertainty managed?
► Identify the risks► Understand the tolerance for risk► Use the marketplace to manage the tail ends of the inventory
distributions by: Forward marketing to reduce the exposure to price volatility
and market liquidity issues Trading options for the purchase and sale of electricity