Participation of pumped hydro energy storage in the Nordic electricity markets
Nieminen, Saila (2024)
2024
Sähkötekniikan DI-ohjelma - Master's Programme in Electrical Engineering
Informaatioteknologian ja viestinnän tiedekunta - Faculty of Information Technology and Communication Sciences
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Hyväksymispäivämäärä
2024-12-19
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:tuni-2024121811379
https://urn.fi/URN:NBN:fi:tuni-2024121811379
Tiivistelmä
The increasing volatility in the Finnish electricity market and the growing amount of intermittent energy production have created a need for energy storage to balance the energy system. Pumped hydro systems (PHS) are seen as one potential option to support power balance and reduce the volatility of in the electricity market. PHS systems’ advantage is that it is technologically mature and has a long lifetime. However, creating a business case for it is challenging. This thesis explores how a hypothetical PHS system with 500 MW of generating power and a 10 GWh capacity of the upper storage would operate in the Finnish electricity markets and what type of impact it would have on the electricity market. Based on these results, a net present
value investment calculation was done.
The operation of the PHS is explored in the day-ahead market and in the FCR-N, FCR-D and aFRR reserve markets by using a linear optimisation model to maximise profits for one year. The modelled PHS system would generate annually about 70 million euros of profit, from which 15 % coming from the reserve markets. PHS systems can therefore generate significant revenue from the day-ahead market when it the market price is volatile. Additionally, the revenue from the reserve market can support the profitability of the PHS system. On the other hand, the calculation result is quite optimistic since the model optimises the entire year at one time which would not be possible in real life.
Next, the impact of the PHS system’s participation in the day-ahead market was assessed. The results show that the volatility would significantly decrease, which would result in decreased revenue for the PHS system. In other words, the PHS system would cannibalise its annual profits from 70 million euros to around 12 million euros. This is likely to present a worst-case scenario for the PHS system owner, and revenue from the optimised result presents the best-case scenario. If a PHS system is ever built in Finland, the annual revenue is likely between these two.
Finally, a simple net present value calculation was done, which showed that a PHS system is viable with the optimised profits and not viable when the effect the PHS has on the prices is considered. This shows that the PHS system cannibalises its own profits to such an extent that the investment in it becomes unviable. However, the major weakness is that predicting the profit of a PHS system for its entire lifetime is difficult, which creates uncertainties around the calculation results.
Altogether, PHS systems can provide support for the decarbonisation of the power system through balancing intermittent energy production and thus enhancing grid stability. However, in liberalised energy markets, the cannibalisation effect creates challenges for the financial viability of a PHS investment.
value investment calculation was done.
The operation of the PHS is explored in the day-ahead market and in the FCR-N, FCR-D and aFRR reserve markets by using a linear optimisation model to maximise profits for one year. The modelled PHS system would generate annually about 70 million euros of profit, from which 15 % coming from the reserve markets. PHS systems can therefore generate significant revenue from the day-ahead market when it the market price is volatile. Additionally, the revenue from the reserve market can support the profitability of the PHS system. On the other hand, the calculation result is quite optimistic since the model optimises the entire year at one time which would not be possible in real life.
Next, the impact of the PHS system’s participation in the day-ahead market was assessed. The results show that the volatility would significantly decrease, which would result in decreased revenue for the PHS system. In other words, the PHS system would cannibalise its annual profits from 70 million euros to around 12 million euros. This is likely to present a worst-case scenario for the PHS system owner, and revenue from the optimised result presents the best-case scenario. If a PHS system is ever built in Finland, the annual revenue is likely between these two.
Finally, a simple net present value calculation was done, which showed that a PHS system is viable with the optimised profits and not viable when the effect the PHS has on the prices is considered. This shows that the PHS system cannibalises its own profits to such an extent that the investment in it becomes unviable. However, the major weakness is that predicting the profit of a PHS system for its entire lifetime is difficult, which creates uncertainties around the calculation results.
Altogether, PHS systems can provide support for the decarbonisation of the power system through balancing intermittent energy production and thus enhancing grid stability. However, in liberalised energy markets, the cannibalisation effect creates challenges for the financial viability of a PHS investment.