A Contingency Reserve Fund to Compensate Inter-annual Variability of Hydro-Electric Inflows for Portugal

Abstract

The Portuguese power-generation system includes a large set of hydro-electric power stations (with reservoir or run-of-river plants) which are responsible for about 58% of the total production (≃ 18,000 GWh during an average hydrologic year). Unfortunately, this hydro-electric contribution has a strong inter-annual variability (σ/μ = 3200/10,500 ≃ 0.3 GWh), and hence the annual cost of thermal production and imports, C_t, which is required can also cover a wide range of values.

Smoothing {C_t} is important to avoid disturbing fluctuations of electricity rates, and the traditional solution to achieve this objective is that of increasing the inter-annual water storage capacity.

However, this solution is bounded by hydrological and geographical limitations, and it requires a high level of capital expenditure.

The purpose of this paper is to present another method to compensate the residual variation of {C_t} based on the development of a financial stock (‘Fundo de Apoio Termico-FAT’, or ‘Thermal Contingency Reserve Fund’).

A direct simplified analysis and a simulation model developed by the author to design this stocking system are presented in this paper, as well as their application to the case of Portugal.