Whose heads are we keeping above water? Impacts of risk aversion on hydropower medium-term scheduling

The changing and rising uncertainty within power systems may result in more frequent and severe misalignments between hydropower storage management and society’s interests. This work examines how risk aversion can influence the use of stored hydropower energy in centralized and liberalized power systems. We investigate the impact of different uncertainty sources and compare an equilibrium with risk-averse hydropower producers to risk-neutral and risk-averse central dispatch optimization approaches. Our main finding is that risk aversion can impact the scheduling strategies of competing hydropower producers in liberalized markets and those of a risk-averse central planner in opposite ways. Notably, risk-averse competing producers may have an incentive to spare less water in the cases of an expected energy deficit at the system level and higher price variability, potentially jeopardizing energy security. Meanwhile, contrary to strategic behaviour, widespread risk aversion in hydropower storage management can decrease or increase the producers’ revenues at an aggregated level, depending on the energy situation. • Risk-averse hydropower management changes with power system liberalization. • Risks entailed by rising uncertainty in the power system vary across agents. • Risk-averse competitive hydropower producers can compromise energy security.