Supply Shortage Hedging: Estimating the Electrical Power Margin for Optimizing Financial and Physical Assets With Chance-Constrained Programming

This paper deals with estimating the maximal production capacity of a hydrothermal system. We will show why this is of interest and how such a problem arises in a context of hedging against supply shortage, using financial and physical assets. Therefore, we will formulate the supply shortage hedging as a stochastic optimization problem with chance constraints and show on an example why introducing physical assets in the hedging problem is of economical interest. We then highlight the inherent mathematical difficulties, introduced by optimizing physical assets. Using maximal production capacities of the hydrothermal system improves tractability of the hedging problem. However, focusing on the hydraulic production maximal capacity, we illustrate the combinatorial and nontrivial nature of this subproblem. Finally, we show how our problem formulation may lead to embedded chance constraints.