Hydropower / Pumped Hydro Energy StorageProject Battery of the Nation Future State NEM Analysis (Stage 2)
Report: Battery of the Nation - Operation of Storages Without Perfect Foresight (PDF 3MB)
The Battery of the Nation initiative is investigating and developing a pathway for future development opportunities for Tasmania to make a greater contribution to the NEM. ARENA has co-funded six projects with HydroTasmania under the initiative, which are helping to explore locations, finance models, market challenges and opportunities.
Australia is planning and preparing for a very different electricity system. Low cost wind and solar will become the dominant providers of energy, and flexible supply options will be needed to help manage the system. Storage is projected to play a major role in this transformation.
Hydropower, including pumped hydro energy storage, has been present in the National Electricity Market (NEM) since it began operation in 1998. However, it is not well represented in the models used for power system planning, due to the simplifications used to reduce model complexity to a manageable level.
Many generation types can be modelled as having infinite fuel – the generator will operate whenever the price is more than its short-run marginal cost. Energy storage operation requires more active decision-making about the energy in storage, which requires a view of the future.
Perfect foresight has been a convenient simplification in power system modelling. Perfect foresight means that all decisions are made with full knowledge of all relevant information at all times: past, present and future. This means that ‘perfect’ decisions will be made. However, in the real electricity market, decision makers do not have complete information. Uncertainty in forecasting is particularly relevant for storages since it determines the value of energy in storage – both when choosing to supply and when choosing to store. The simplification of perfect foresight is becoming material in planning for the NEM and leading to conclusions which underplay the need for storage – particularly long duration storage.
This paper uses a mathematical optimisation model (linear program) to show that while all storages will lose some value when relying on an uncertain view of the future price (a proxy for the supply-demand balance) long duration storages are more robust.