Optimizing Trading Decisions for Hydro Storage Systems Using Approximate Dual Dynamic Programming

Nils Löhndorf (), David Wozabal () and Stefan Minner
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Nils Löhndorf: Vienna University of Economics and Business, 1020 Vienna, Austria
David Wozabal: Technische Universität München, 80333 Munich, Germany

Operations Research, 2013, vol. 61, issue 4, 810-823

Abstract: We propose a new approach to optimize operations of hydro storage systems with multiple connected reservoirs whose operators participate in wholesale electricity markets. Our formulation integrates short-term intraday with long-term interday decisions. The intraday problem considers bidding decisions as well as storage operation during the day and is formulated as a stochastic program. The interday problem is modeled as a Markov decision process of managing storage operation over time, for which we propose integrating stochastic dual dynamic programming with approximate dynamic programming. We show that the approximate solution converges toward an upper bound of the optimal solution. To demonstrate the efficiency of the solution approach, we fit an econometric model to actual price and inflow data and apply the approach to a case study of an existing hydro storage system. Our results indicate that the approach is tractable for a real-world application and that the gap between theoretical upper and a simulated lower bound decreases sufficiently fast.

Keywords: OR in energy; stochastic programming; Markov decision processes; approximate dynamic programming (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (29)

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