Delta-Hedging a Hydropower Plant Using Stochastic Programming

Abstract

An important challenge for hydropower producers is to optimize reservoir discharges, which is subject to uncertainty in inflow and electricity prices. Furthermore, the producers want to hedge the risk in the operating profit. This article demonstrates how stochasticprogramming can be used to solve a multi-reservoir hydro scheduling case for a price-takingproducer, and how such a model can be employed in subsequent delta-hedging of the electric-ity portfolio.