Dominant Contracting Strategies for Hydropower Projects Considering Inflow Uncertainties-Application to the Brazilian Case

This paper presents a methodology, based on stochastic simulation and multiple risk measures, for evaluating different contracting strategies for hydropower projects (HPP) in order to identify dominant strategies in terms of risk and return, taking into account the non-systematic hydrological risk embedded in this type of project. Distinct risk measures including Value at Risk - VaR, Conditional Value at Risk - CVaR and the Sharpe Ratio are considered. The approach is applied in case studies derived from real configurations of the Brazilian system to identify the dominant strategy in terms of how much energy a HPP project should be contracted through power purchase agreements in the Brazilian auction system and how much energy should be traded in the spot market. The results obtained pointed out that for the Brazilian case contracting levels around 80% of the HPP assured energy are the dominant strategies for all utilized risk measures.