Export of Norwegian Pumped Storage

Abstract

The increased use of renewable energy sources in Continental Europe, in particular Germany, has led to a great variability in power production and prices. One proposed way to remedy the Continent s power balance which is also economically viable in a free power market is by the means of Norwegian pumped storage. However, the profitability in such an environment is highly dependent upon the extent of price variation in the market.In this paper, it has therefore been sought to find a stochastic price model in which the spot price is allowed to fluctuate around a sound forecast. With historical data from the German power market as the point of departure, a deterministic price curve with seasonal and daily patterns has been obtained through linear regression. This curve has been adjusted to the market expectations contained in power futures contracts. By contrasting the updated deterministic price curve with the actual spot price, it has been possible to obtain a time series model on the basis of deviations that are mainly stochastic.The time series model has been used to generate multiple spot price scenarios that serve as an input for a representative Norwegian pumped storage power station. Simulations show that both the power station s production planning and revenues are dependent on which scenario that is under consideration. Nonetheless, the production patterns under both the different scenarios and the real spot price are comparable, in particular with regards to the daily and weekly patterns. Similarly, the total profits depend upon the variance of the price scenarios, but all scenarios, including the actual spot price, has been shown to yield significant revenues.