The Economic Cost of Hydropower Environmental Constraints under Decreasing Price Volatility

Hydropower optimization includes market prices, the plant-specific technological constraints and the environmental operation constraints set by the regulator. An efficient environmental flow regulation should consider both the improved ecological state of the river system (benefit) and the loss of hydropower revenue (economic cost) related to the environmental constraint level. This paper studies how the economic cost of environmental constraints changes if electricity prices are less volatile as a result of more price-responsive demand. In this paper, the effects of tighter maximum flow, minimum flow and flow ramp constraints are studied analytically and numerically. Additionally, a flow requirement of a turbine passing channel is included in the analysis. We show that the economic costs of operation constraints set to maximum and minimum flow decrease with lower price volatility. The economic costs of turbine passing flow requirements are insensitive to price volatility. Based on the results, we use the marginal cost and marginal benefit framework and discuss how to set the optimal environmental constraint level