Incremental cost and allocation of hydro-resources to energy intensive industries

A recursive model is applied in order to estimate the incremental cost of adding energy intensive industries (EII) to a hydro-based power system. The modeling framework assumes available, untapped resources as a set of hydroelectric projects, with a given cost and capacity, to be developed in a sequence. A forecast for basic demand is also assumed. It is shown that economies of scale (EOS) in project cost can be exploited to lower the incremental cost to the EII, especially for larger projects, and in particular, if energy is delivered both to the EII and to serve the basic demand. Several different definitions of the incremental cost are proposed depending, for instance, on project selection (sequence). Combining EII and gradually increasing basic demand can give economic benefits beyond the classical calculation of a project´s energy cost and lead to the economical exploitation of large hydro resources that could not otherwise have been developed