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March 29, 2018
Brattle Economists: Some Hydro Plants Substantially Undervalued in Today's Power Markets

Economists at The Brattle Group released a study today that examines flexible hydro resources in wholesale power markets and finds that improving operational practices and market rules may be able to enhance the value of these resources by 200% to 500%.  With the growing need for grid flexibility, more fully utilizing the capabilities and value of existing hydro resources is a natural complement to investments in new storage resources.

The Brattle study finds that:

  • Flexible hydro plants can provide a broad range of operational and reliability attributes to wholesale power markets that are often not fully utilized today.
  • Approximately 14,000 MW of pumped-storage hydro and 25,000 MW of conventional hydro plants operate in the U.S. organized wholesale markets today, with an additional 60,000 MW operating in the Northwest and Southwest outside of organized markets.
  • The majority of conventional hydro resources offer grid flexibility. Even pondage hydro plants, sometimes labeled as run-of-river, usually have a dam that enables them to control water flow and generation on hourly, daily, and, occasionally, weekly timeframes.
  • The full energy, ancillary, and flexibility services value of these resources is rarely realized today due to market and operational barriers that would need to be reduced or removed.

Utilizing results from a case study of a pumped-storage hydro plant in one of the RTO markets, the authors further demonstrate that:

  • Co-optimized bidding and fully RTO-optimized dispatch into existing day-ahead energy, real-time energy, and ancillary services markets can increase net revenues of some existing pumped-storage plants by 200% to 300%.
  • Equipment upgrades to hydro plants (e.g., to allow more flexible transitions between pumping and generation modes of pumped-hydro plants) would further increase net revenues for the facility to as much as 400% to 500% above current practices.
  • Pumped-storage hydro plants are particularly amenable to capturing such improvements, because they are usually not subject to water-use restrictions, although capturing more value is also possible for other flexible hydro facilities. 

“Our analysis demonstrates that the owners of existing hydro power plants may be able to considerably increase the revenues earned in today’s wholesale power markets,” noted Pablo Ruiz, a Brattle senior consultant and study co-author.  “Much of the additional value can be obtained simply by optimizing how the resources are bid into the existing day-head energy, real-time energy, and ancillary services markets.  Some hydro resource owners will be able to further increase this value through investments that make the plants more flexible. However, capturing the full value stream may require some modifications to the RTOs’ existing market rules as well as improvements in the scheduling optimization procedures used by the plant owners.”

The study, “Maximizing the Market Value of Flexible Hydro Generation,” is authored by Brattle economists Pablo Ruiz, James Read, Johannes Pfeifenberger, Judy Chang, and Roger Lueken.  It is available for download below.