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Discussion Paper

Water Storage Policy in a Simplified Hydroelectric System

This paper deals with an electricity generating system that combines one hydroelectric reservoir and generating plant with unlimited thermal generating capacity operating at increased incremental cost. It constructs a water storage policy that minimizes the operating cost of thermal generation over the planning period while meeting a prescribed demand for power given as a function of time. Associated with this policy are valuations (“efficiency prices”) imputed to the power generated and the water used and (“efficiency rents”) to the use of reservoir and turbine capacities.