Duality Based Risk Mitigation Method for Construction of Joint Hydro-Wind Coordination Short-Run Marginal Cost Curves

This study analyzes the short-run hydro generation scheduling for the wind power differences from the contracted schedule. The approach for construction of the joint short-run marginal cost curve for the hydro-wind coordinated generation is proposed and applied on the real example. This joint short-run marginal cost curve is important for its participation in the energy markets and for economic feasibility assessment of such coordination. The approach credibly describes the short-run marginal costs which this coordination bears in “real life”. The approach is based on the duality framework of a convex programming and as a novelty combines the shadow price of risk mitigation, which quantifies the hourly cost of mitigating risk, and the water shadow price, which quantifies the marginal cost of electricity production. The proposed approach is formulated as a stochastic linear program and tested on the case of the Vinodol hydropower system and the wind farm Vrataruša in Croatia. The result of the case study is a family of 24 joint short-run marginal cost curves. The proposed method is expected to be of great interest to investors as it enables risk mitigation for investors with diverse risk preferences, from risk-averse to risk-seeking.