Alpine Hydropower in the Decline of the Nuclear Era: Trade-Off between Revenue and Production in the Swiss Alps

Abstract

Hydropower systems contribute to the welfare of a country by producing renewable and clean electricity and by generating revenue. Market liberalization and increasing share of new renewable energy sources, with associated increase in price volatility, are profoundly reshaping hydropower operations in many countries where these developments have already taken place. In this evolving context, some European countries are phasing out nuclear power plants and looking for alternatives to replace the lost production share. Hydropower is one of the candidates, particularly in water-abundant hydrological regions, where large storage hydropower systems contribute a big share of the production. Yet, shifting current revenue-oriented operations toward a production-maximizing strategy might come to the cost of a reduction in income for hydropower companies. In this paper, we specifically explore trade-off between maximizing hydropower electricity production and revenue in deregulated markets. We focus on a case study in the Swiss Alps that can be considered as paradigmatic of most hydropower systems in mountainous regions worldwide. We developed a stochastic biobjective optimal control problem, which allows the design alternative hydropower operating strategies differently balancing electricity production and revenue maximization, accounting for both the variability of reservoir inflow and electricity price. Our results show that a production-driven operation might have strong consequences on the hydropower company income, suggesting that there is a low rate of substitution between the two objectives in the current energy market situation. The proposed approach can support policy makers in analyzing the dualism production/revenue in any hydropower system under complex natural and socioeconomic constraints and represents a benchmark to test different types of mechanisms to promote favorable economic conditions to hydropower companies to increase electricity production.