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

Nils Löhndorf (nils.loehndorf***at***wu.ac.at)
David Wozabal (david.wozabal***at***tum.de)
Stefan Minner (stefan.minner***at***tum.de)

Abstract: We propose a new approach to optimize operations of hydro storage systems with multiple connected reservoirs which 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 towards 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, Approximate Dynamic Programming, Stochastic Programming, Markov Decision Processes

Category 1: Applications -- OR and Management Sciences

Category 2: Other Topics (Dynamic Programming )

Category 3: Stochastic Programming

Citation: Technical Report, 09/2012

Download: [PDF]

Entry Submitted: 12/10/2011
Entry Accepted: 12/10/2011
Entry Last Modified: 09/19/2012

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