Limit Order Trading in Hydropower - What's the catch?
Renewable, flexible energy storage with a capacity 30 times that of battery technology - you would think hydropower already headlines the renewable agenda, and all energy panels. Why is this potential so hard to harness, and why are so many flexible storage hydropower plants being managed like run-of-river plants?
The answer lies in the complexities of capturing, storing, tracking and releasing water in volatile weather systems, undergoing incremental changes driven by the climate crisis. All other flexible storage solutions at our disposal - fossil fuels, coal, nuclear - are predictable and they can be stored indefinitely.
By contrast, hydropower operators don’t have certainty over when water is coming, or how much of it they can expect. Add to that the strictly regulated environment in which hydropower is being produced, and it is no wonder that only big players use their flexible storage potential to generate more energy at higher revenues.
HYDROGRID is challenging the status quo that limit order bidding automation is a labour and time intensive task.
How much of storage hydro can really be used for strategic trading?
Less than you'd expect.
Unlike all other flexible energy storage, which, at least in theory, is 100% predictable and can be stored indefinitely, the challenges of using hydropower flexibility make it a not so obvious choice for grid stabilization and limit order trading:
Asset Complexity
Multi-level cascades require intricate bidding strategies. Throughout such a cascade, the flexibility is only as wide as the operator’s ability to steer water through the smallest reservoir, which in some topologies, acts like a bottleneck in an otherwise highly flexible system.
Environmental Restrictions
Ecological flow, level regulation, ramping regulations, flood and drought prevention and many more restrictions reduce initial flexibility.
Operational Restrictions
To protect hydropower hardware and use it at its full capabilities, you need to account for turbine efficiency curves, start/stop costs, maintenance and outages etc.
Inflows
Perhaps the most obvious challenge, water inflows and inflow forecasts determine how much energy you can dispatch. Unlike other flexible assets, hydropower producers have little to no control on the energy capabilities available to them at a specific time. In a fossil fuel analogy, a hydropower tank will refill for free at a certain point in time, you just don’t know when this will happen.
Each of the above considerations takes away from what, at first glance, looked like the perfect green energy storage solution. And despite all of the above, many producers use the remaining flexibility to dispatch water strategically, aiding a stressed power grid and maximizing their profits in the process.
Market Order vs Limit Order Bidding
Hydropower operators are tasked to first and foremost ensure that all the above challenges are overcome - which in itself is a complex task. When internal resources allow (technical, as well as man hours and infrastructure), the remaining reservoir flexibility can be used in one of two ways: market order trading, or limit order trading. Here’s what they both mean for hydro:
Market Orders
Executed immediately at the current market price, often used by renewable sources like wind and solar, which produce power unpredictably based on weather conditions. This is also the avenue many small-, and medium- size hydropower producers take, even if they dispose of storage flexibility. This choice doesn’t guarantee the price and can even result in negative price trading in some situations.
Limit Orders
Specify a maximum price to buy and/or a minimum price to sell, offering greater control over transaction prices and creating the context for price peak hunting. If the market conditions match the producer’s profitability point (pst, we help you with real-time calculations of that too) then water is being dispatched. If not, the available storage is used to store water, within the system pre-set limits.
The ability to sell power when prices are high, and hold it when price falls bellow profitability limits, maximizing profits and ensuring a more stable revenue stream is what HYDROGRID aims to bring to producers of all sizes, and assets of all levels of complexity.
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Machine learning for flexibility maximization
Coming up with a Limit Order Bid for hydro-power assets is not easy. HYDROGRID Insight offers all the tools and intelligence needed, and is also capable of producing an automated limit order bid every day. In a nutshell, here are the key components required to operate a power plant with flexibility:
- Inflow forecasting: First, one needs to know not only how much water is to be expected, but also how much water can be expected at least and at most. While perfect clairvoyance is not possible, inflow forecasting gets pretty close when approached using modern machine learning methods.
- Water value calculation: The profitability point is often referred to as water value. In order to compute it, one has to take into account a number of factors, like future inflow and future price, current telemetry data and more. The rule of the game is: try to save your water now, if you expect to sell it at higher prices tomorrow, when the grid will need it more. In doing that, be sure to manage opportunity costs of dispatching and second order risks of storing. 'HYDROGRID Insight' uses its own algorithm to compute the water value in real-time.
- Production bounds calculation: In general, any position in a limit order bid should be executable. This means that all the reservoirs in a cascade should have enough water to produce and produce enough to avoid spilling regardless of how the prices would turn up. Therefore, coming up with the possible hourly production bounds is in itself a complex optimization process, and the result is the maximum flexibility range that inflow allows. For example, given only a few hours of full load production, HYDROGRID Insight will try to allocate those hours according to market price forecasts, if the inflow allows for it.
- Efficient bid generation: Once water value and production bounds have been calculated, there are still several nitty-gritty details to take into account to obtain the most efficient bid. Just to name two:
- The efficiency of the turbines: In general, it is favorable to produce at the best efficiency point, but when the prices turn out particularly high, we would rather produce the maximum that we can according to the production bound.
- The synchronization of the bids of cascades: If a reservoir in the cascade is very small, the limit order bid of the different turbines of the cascade might not be independent. Synchronizing the bid files is an operation that might be quite tedious (or in some cases complex) for human operators, but that is supported by HYDROGID Insight.
Is Limit Order Trading Worth Pursuing?
Yes.
Hydropower is the only viable renewable option for energy storage at scale we will have for the next decades. The infusion of balancing services coming from a green source is the only green way we can replace gas and coal and decouple energy prices from gas prices. It increases grid stability, actively reducing emissions by replacing fossils; it increases energy independence and reliability in their geographies, and is generally cheaper.
Intermittency Issues
Wind and solar depend on weather conditions, leading to unpredictability in power generation. The more reliable options of fossils are slowly taking the backseat in the energy landscape, according even to ‘big oil’ reports. (Source) These concurring market developments create new opportunities for hydropower asset managers willing to explore limit order bidding.
Markets are changing
Electricity demand increase outpaces the total energy demand increase all across the globe. To keep up with a changing energy landscape, power grids have to adapt at an unprecedented pace and flexible storage solutions like hydropower will be crucial in this process. The market for hydropower is expected to grow, offering significant profitability and environmental benefits for those ready to seize the opportunity.
Why HYDROGRID Insight?
HYDROGRID Insight offers the tools needed to maximize flexibility and then also equips you to use the gained opportunities on the power market by creating a generation plan and a limit order bid in an automated fashion. This how we tackle each of the flexibility limiting variables:
- Asset Complexity: Multi-level cascades require intricate bidding strategies. Throughout such a cascade, the flexibility is only as wide as the operator’s ability to steer water through the smallest reservoir, which in some topologies, acts like a bottleneck in an otherwise highly flexible system.
- Environmental Restrictions: Ecological flow, level regulation, ramping regulations, flood and drought prevention and many more restrictions reduce initial flexibility.
- Operational Restrictions: To protect hydropower hardware and use it at its full capabilities, you need to account for turbine efficiency curves, start/stop costs, maintenance and outages etc.
- Inflows: Perhaps the most obvious one, water inflows and inflow forecasts determine how much energy you can dispatch. Unlike other flexible assets, hydropower producers have little to no control on the energy capabilities available to them at a specific time.
Our commitment is to empower our users with tools that not only meet but exceed their operational needs. HYDROGRID Insight V3 is the newest outcome of our commitment to innovation, user experience, and operational excellence. In an energy sector where the efficient management of water resources is more critical than ever, HYDROGRID Insight stands out as a forward-looking solution that prepares you for the challenges of tomorrow.
Whether you’re looking to ensure constraint compliance, optimize your operations workflows, trade strategically, plan for the future, or streamline your maintenance processes, HYDROGRID is your partner in optimal water management.
Get in touch with our hydro consultants to learn how!
operations to the next level?
Get in touch with our hydro consultants to learn how!
