Modeling the Impact of Energy and Water Prices on Reservoir and Aquifer Management

Climate change and polices to limit carbon emissions are likely to increase energy and water scarcity and raise prices. These price impacts affect the way that reservoirs and aquifers should be managed to maximize the value of water and energy outputs. In this paper, we use a model of storage in a specific region to illustrate how energy and water prices affect optimal reservoir and aquifer management. We evaluate reservoir-aquifer water management in the Merced water basin in California, applying an optimization model of storage benefits associated with different management options and input prices. The model includes two submodels: (a) a monthly nonlinear submodel for optimization of the conjunctive energy/water use and (b) an inter-annual stochastic dynamic programming submodel used for determining an operating rule matrix which maximizes system benefits for given economic and hydrologic conditions. The model input parameters include annual inflows, initial storage, crop water demands, crop prices and electricity prices. The model is used to determine changes in net energy generation and water delivery and associated changes in water storage levels caused by changes in water and energy output prices. For the scenario of water/energy tradeoffs for a pure reservoir (with no groundwater use), we illustrate the tradeoff between the agricultural water use and hydropower generation (MWh) for different energy/agriculture price ratios. The analysis is divided into four steps. The first and second steps describe these price impacts on reservoirs and aquifers, respectively. The third step covers price impacts on conjunctive reservoir and aquifer management. The forth step describes price impacts on reservoir and aquifer storage in the more common historical situation, when these facilities are managed separately. The study indicates that optimal reservoir and aquifer storage levels are a positive function of the energy to water price ratio. The study also concludes that conjunctive use of a reservoir and an aquifer tends to force convergence in the long term, multiyear, average groundwater and reservoir storage heads. The results of this study can be used for developing an efficient strategy of managing energy and water resources in different regions across a broad range of climatic, agricultural, and economic scenarios.