Using Supply Chain Management Techniques to Make Wind Plant and Energy Storage Operation More Profitable

Transcription

1 Using Supply Chain Management Techniques to Make Wind Plant and Energy Storage Operation More Profitable By Prashant Saran & Clay Siegert Thesis Advisor: Dr. Jarrod Goentzel

2 Key Results Applying SCM techniques to Wind Plant and Storage operation works: Increase gross profit up to 19% of base case revenues Increase operating profit up to 15% of base case revenues Make overall pre tax profit in certain scenarios Novel approach applying SCM to wind plant and storage operation 2

3 Agenda Problems facing wind plants and energy storage Our hypothesis: SCM can solve these problems Relevant SCM techniques Simulation model to test hypothesis Simulation results and management insights 3

4 Problems Facing Wind Plants and Energy Storage Wind plants earn sub optimal revenue Issue #1: Remote location low prices Issue #2: Intermittency revenue unpredictability Issue #3: Intermittency low installed capacity payments Electrical energy absolutely perishable Spatial and temporal variability of electricity prices Spatial: At noon, $75 in Maine vs. $92 in Cambridge vs. $101 in Providence Temporal: At midnight in Maine = $55, while at noon in Maine = $75 Premium prices paid for: predictability, availability in high demand areas at right time Energy storage possible solution for wind plants Rapidly evolving technology Existing research says not profitable 4

5 Our Hypothesis SCM techniques can make wind plant and energy storage operation more profitable Network Design Decisions 1 Facility Location: Where should storage unit be located? Capacity Allocation: How much storage capacity should be built? Supply Allocation: How will storage unit get charged? Market Allocation: What markets should each facility participate in? Daily Operating Policies (Inventory Management) 2 Input Policies for charging storage Output Policies for discharging storage 1 Chopra & Meindl, 2004; 2 Silver, Pyke, & Peterson,

6 Relevant SCM Techniques: Network Design Decisions Decisions: Facility location? Capacity allocation? Co Located Supply allocation? Market allocation? Located (Cos Cob) Located (Cambridge) Located (Providence) 6

7 Relevant SCM Techniques: Daily Operating Policies Electricity Characteristics and Model Assumptions Product: Perishable Planning Horizon: 1 Day Demand: Infinite Lead Time: Variable Review Period: Continuous / Periodic Total Cost Function Unit Variable Cost: Electricity Cost Inventory Carrying Cost: Standby Loss Ordering or Setup Cost: Round Trip Loss Shortage Cost: Penalty in DA Four Daily Operating Policies: Simple Cost Based Max Peak Rapid Arb Single Period (Newsvendor) Problem Cost of Overage: Sell after peak hours Cost of Underage: Not enough for peak hours 7

8 Daily Operating Policies Amount of Energy Stored in Storage Unit (MWh) Simple Charge Cost Based Standby Loss, Charge & Discharge Standby Loss Standby Loss & Discharge Hour of Day Max Peak Discharge Rapid Arb Max Energy Min Energy 8

9 Model Wind Plant Electricity Output Supply Chain Management Network Design Decisions Electricity Market Prices Simulation Model Incremental Revenue & Profit Storage Technology Costs & Technical Specifications Daily Operating Policies Supply Chain Management

10 Simulation Model Runs 121K possible scenarios Location, seasonality, market, operating policy, etc. 10K runs for each scenario: Intelligently reduced to 5,130 scenarios 51.3M simulations: Rapid Arb 190 days (Summer & Winter) Co Located and Located Hybrid vs. Linked Day Ahead and Real Time Markets Storage Capacity (10% to 100%) 10

11 Results: Daily Operating Policy Scenario Design Scenario 1 LOCATION Co Located STORAGE CAPACITY as % of Wind Capacity 50% MARKET SUPPLY LINKAGE Real Time Linked Wind Day 95 Rapid Arb is the Best Policy 11

12 Impact of Network Design Decisions (Summer) Location: Cos Cob > Co Located Supply Linkage: Hybrid > Linked Market: Day Ahead > Real Time (if Installed Capacity Payments) 12

13 Impact of Network Design Decisions (Winter) Location: Cos Cob > Co Located Supply Linkage: Hybrid > Linked Market: Day Ahead > Real Time (if Installed Capacity Payments) 13

14 Storage Capacity LINKED HYBRID Diminishing Returns: 20% optimal capacity if costs increase linearly Constant Increasing Returns: Limited by technology, space and capital constraints 14

15 P&L Snapshot 15

16 Alpha Battery: Capital Cost, Operating Profit & Installed Capacity Payments Total: $14,922 Total: $8,623 Battery Life: 15 years 16

17 Beta Battery: Capital Cost, Operating Profit & Installed Capacity Payments Total: $11,470 Total: $5,171 Battery Life: 30 years 17

18 Management Insights Operators Use SCM techniques to manage Wind Plant and Storage operation Daily Operating Policies Use policies based on Inventory Management concepts to improve profitability Iterate policies regularly Network Design Decisions Locate storage in densely populated areas Operate storage with Hybrid policy Size storage to maximize utilization Use storage to commit in Day Ahead market Battery Manufacturers Lower capital and operating costs to the targets specified by our research ISO Policymakers Qualify batteries for Installed Capacity Payments drive penetration of more profitable wind energy 18

19 Key Results Applying SCM techniques to Wind Plant and Storage operation works: Increase gross profit up to 19% of base case revenues Increase operating profit up to 15% of base case revenues Make overall pre tax profit in certain scenarios Novel approach applying SCM to wind plant and storage operation 19

20 Thank You! Questions? 20