Fig. 1 - Causal Diagram of the Project Area
A SYSTEM DYNAMICS BASED STRATEGIC PLANNING MODEL FOR HYDROELECTRIC SYSTEMS
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ABSTRACT
This work presents a new methodology for supporting the strategic
planning process in a corporation dedicated to hydroelectric generation.
Concepts of strategic planning are presented initially, followed
by the provision of supportive material for the development of
a computer model representing the operational scheme, and concluding
with examples of its application.
This type of company may be the result of either the incentive
to competitive generation within the power sector, or the result
of the unbundling of previously integrated utilities [1], [2].
The model comprises two sub-models: the technical performance
sub-model and the managerial sub-model. The paper emphasises the
aspects related to the managerial model.
KEYWORDS
Operation Systems, System Dynamics, Strategic Planning, Stochastic
Simulation
1. INTRODUCTION
Strategic planning is a process that seeks to translate managerial
objectives into policies and allocations of resources that will
permit attaining these objectives. This process generally passes
through the following stages: establishment of corporate objectives
and targets; evaluation of the trends in the economic, political,
technological and competitive environments; identification of
potential opportunities and threats; and the development of strategies,
policies and allocation of resources to face the threats and to
take advantage of the opportunities.
Many firms fail to attain their corporate objectives due to the
use of planning tools that are unsuitable for the ever-changing
business environment. This problem may be dealt with by means
of simulation models that permit to anticipate potential problems
and to design and evaluate operational policies and strategies
to minimise their effects.
In the case of a hydro generating utility, the simulation model
must take into account both the technical aspects and the management
process of the corporation. The technical sub-model aims to determine
the generating capacity and a performance index that takes into
account the inflows to the reservoirs, maintenance schemes and
forced shutdowns of the generator units. The management sub-model
gets the results of the technical model to determine the technical-economical
consequences of the corporate policies. A feedback loop exists
between the sub-models due to the necessity for a new technical
evaluation of some management decisions.
2. MANAGERIAL MODEL
A typical hydro generation utility is composed of two main
management sectors: technical management and financial management.
Each management sector, in turn, is divided into areas of activity.
For example, the technical management may be divided into areas
of project, operation and maintenance; the financial management
into areas of resources and materials.
Each area of activity is a hierarchical structure with specific
objectives and aims. Sometimes, there are discrepancies of objectives
and aims in the same management sector. These conflicts may result
in loss of generating capacity. The objectives and aims of each
area is described next, presenting the functions of the technical
areas in accordance with their causal connections.
2.1 Areas of the technical management
2.1.1 - Project area
In an enterprise generating electricity that is already in
its operational phase, the projects have two principal origins:
the need for technological updating of the installations and exceptional
services, such as, for example, the increase in the installed
capacity. The project area has the objetive of concluding the
requested services, within the pre-established time limits. To
this end it possesses a staff of employees and the possibility
of contracting outside services. Figure 1 summarizes the principal
functions of this area.
The Availability for the project, in Man-hours (m-h) depend
on the Demand rate for services, in Man-hours per period
(m-h/p) and on the Conclusion of services rate (m-h/p).
Since the demand for service occurs in an "almost" continuous
manner and the Conclusion of services rate depends on the
availability of resources, within the area there exists an established
dynamic process affected as much by internal factors (Resourses)
as by external ones (Demand for services).
2.1.2 - Operation Area
Is the area in charge of the production and operation of the
generating plant. The principal aim of this area is the fulfillment
of the contractual objectives of supply, for example, in MW per
period (MW/p). Its principal functions and the interactions with
the other areas are represented in Figure 2, which also presents
the interface with the technical sub-model.
Fig. 2 - Causal Diagram of the Operation Area
2.1.3 - Maintenance Area
The principal aim of this area is to implement maintenance
schedules. To this end, it possesses a staff of employees and
the possibility of contracting outside services. Fig. 3 summarizes
the main functions of this area.
Fig. 3 - Causal Diagram of the Maintenance Area
2.2 Financial Management Areas
2.2.1 - Resources Area
Is responsible for the management of the income and the expenditures
of the corporation. Income can originate as much from the sale
of energy as from external resources; such as official loans,
commercial loans, etc. The expenditures are associated with debt
payments, with the fixed and the variable cost of the corporation.
The principal aim of this area is the economic balance sheet of
the corporation, i.e., it is responsible for the distribution
of the resources to the remaining areas, for the repayment of
the debt and for obtaining profits for the shareholders.
2.2.2 - Materials Area
Is the area responsible for managing the purchase of the materials
required for the execution of maintenance and/or repair of the
generator units. As a support activity it fulfills a fundamental
role, either in the operation or in the finances. An inadequate
management in this area can lead to the excess or lack of stocks,
the first causing unnecessary expenses and the second causing
delays in the placement into service of the machines under maintenance
or repair.
3 - COMPUTER IMPLEMENTATION
The proposed model was implemented through the technique of
System Dynamics to permit analysis of the aims of the technical
areas of the corporation. The results associated with the project
area and the global results are presented as follows:
3.1. - Analysis of the Aim of the Project Area
For this case, it is assumed that the project sector is formed
by a fixed team, equivalent to 30 university graduates, working
8 hours per day, 12 months of the year. The project requests occur
in a constant manner, demanding the Man-hours/month of the variable
Demand for services in Table 1. Supposing that the aim
of the area is to conclude the year without any delay in the projects,
it is desirable to analyse the policies and costs to be anticipated
in this área.
In this way, the analysis is reduced to comparing the Demand
for services with the Own resources. Should the result
be negative, action is taken to determine the resources required
to contract outside services. Table 1 also presents the balance
of service, the variable Forecast of outside services (accumulated
value in Man-hours) and the additional cost necessary to attain
the objective (accumulated value in US$), the variable Additional
Costs, considering the cost of Man-hours for the outside services
to be 30 US$/hour.
Table 1 - Variables and Results of the Project Area
Month |
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Demand for services | 6500 | 3400 | 5700 | 4850 | 6020 | 5340 | 5640 | 6800 | 7200 | 5850 | 3600 | 4670 |
Own resources | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 |
Forecast of outside service | 1460 | 0 |
480 |
290 |
1270 |
1570 |
2170 |
3930 |
6090 |
6900 |
5460 |
5090 |
Additiona costs x 1000 | 43,8 | 0 |
14,4 |
8,7 |
38,1 |
47,1 |
65,1 |
117,9 |
182,7 |
207,0 |
163,8 |
152,7 |
From Table 1 it can be concluded that the area will have a deficit
of 5090 Man-hours at the end of the period and that to avoid this
déficit requires additional resources of the order of US$
152700.
In the following example, it is assumed that the area receives
a prompt order of 20000 Man-hours in the fifth month, with a conclusion
term of 4 months, apart from what has to be carried out by the
staff. The management desires to analyse the strategies that will
allow the sector to attain the end of the period with the aim
of a zero service backlog.
In this case the problem is reduced to determining the number
of people and the best period to contract the services of outsiders.
This problem was resolved with the support of the System Dynamics
model constructed on the basis of the diagram of Figure 1. Table
2 summarizes the results of the model.
Table 2 - Variables and Results of the Project Area
Month |
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Demand for services | 6500 | 3400 | 5700 | 4850 | 26020 | 5340 | 5640 | 6800 | 7200 | 5850 | 3600 | 4670 |
Own resources | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 | 5040 |
Contracted outside | 0 |
0 | 0 | 0 |
2856 |
3192 |
3192 |
3192 |
3192 |
3192 |
3192 |
3192 |
Availability for project | -1460 | 180 | -480 | -290 | -18414 | -15522 | -12930 | -11498 | -10466 | -8084 | -3452 | 110 |
Addition.Costs x 1000 | 0 |
0 | 0 | 0 |
85,58 |
181,4 |
277,2 |
373,0 |
468,7 |
564,5 |
660,2 |
756,0 |
Upon consideration of the modality of contracting in the market
for services, the conclusion is reached that the best alternative
is to contract a more or less fixed number over the longest possible
period. In Table 2 it can be seen that the best alternative for
the area is to contract seventeen (17) people at the start of
the fifth period and to reinforce with two people more from the
start of the sixth period. This estimate for Contracted outside,
plus Own resources for the area will permit the project
sector to reach the end of the period with zero service backlog,
verified through the variable Availability for project.
The resources necessary for this alternative are evaluated at
US$ 756000.
3.2 - Analysis of the Targets of Remaining Technical Areas
In a similar manner to the analysis of the project area
each of the areas can be analysed individually. This can be effected
by isolating from the global program the variable that permits
visualising the desidered behaviour. Table 3 provide the variables
that will permit the analysis of the targets for the three technical
areas.
Table 3 - Variables that Represent the Targets of the Technical Areas
Area |
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Variable |
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3.3 - Analysis of Global Strategies
For an analysis at the management level, it can be established
that the aim of the corporation is to attain a favourable economic
result at the end of a determined period. Therefore, a stock variable
was created that accumulates the economic result; the rate of
increase of this stock variable will be the Gross Income
and its rate of decrease the Expenditures.
The Gross Income, in its turn, has a rate of increase
constituted by the Energy Demand times the Cost of Energy,
plus External Loans, and a rate of decrease constituted
by the Purchase of Energy from third parties and the Payment
of Fines, caused by indexes of performance inferior to the
ones that were contracted. As the Expenditures increase
according to a rate formed by the Fixed Costs, that
include the resources from the different areas, the Additional
Resources and the costs associated with the Debt Amortisation.
Depending on the economic results, the management of the corporation
may apply strategies that strive to improve these results. These
strategies may include, for example: reduction of the supply,
price increase, delay or anticipation of maintenance, cuts in
the budgets of the areas, delay in the repayment of the debt,
loans from banking institutions, etc. Table 4 summarizes the results
of two alternatives for analysis.
3.3.1 - Basic Economic Results
This alternative determines in sequence, the power per unit,
the power generated by the station, the maintenace scheme, the
indexes of performance, the income from operation, the expeditures
and the economic result, in relation to each hydrological condition
and for the twelves periods of analysis. Table 4 presents these
results.
Table 4 - Economics Results
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| -3.498.752,30 | -3.498.752,30 | -3.498.752,30 | -6.275.355,60 | -6.275.355,60 | 179.274,90 |
| -3.657.304,75 | -3.657.304,75 | -3.657.304,75 | -10.619.126,8 | -10.619.126,8 | -484.997,19 |
| -2.155.545,97 | -2.155.545,97 | -2.155.545,97 | -13.031.313,6 | -13.031.313,6 | -1.992.816.29 |
| -653.787,19 | -653.787,19 | -653.787,19 | -15.443.500,4 | -15.443.500,4 | -3.500.635,39 |
| -7.344.873,99 | -7.344.873,99 | -194.453.307,1 | -11.460.716,4 | -11.460.716,4 | -2.359.054,52 |
| -17.175.976,1 | -17.175.976,1 | -717.969.627,1 | -6.693.065,10 | -6.693.065,10 | -11.203.963,72 |
| -17.934.754,7 | -17.934.754,7 | -1.286.408.197 | -1.126.274,12 | -1.126.274,12 | -22.133.252,72 |
| -18.693.533,3 | -18.693.533,3 | -1.840.063.707 | 4.440.516,86 | 4.440.516,86 | -31.913.841,22 |
| -14.185.074,9 | -14.185.074,9 | -2.117.966.427 | 8.894.223.71 | 8.894.223.71 | -34.668.076,72 |
| -20.155.629,6 | -20.155.629,6 | -2.316.677.787 | 12.709.435,62 | 12.709.435,62 | -33.938.240,72 |
| -26.335.837,2 | -26.335.837,2 | -2.612.161.547 | 16.587.966,35 | 16.587.966,35 | -38.431.745,82 |
| -21.506.621,7 | -21.506.621,7 | -2.883.415.787 | 21.355.617,69 | 21.355.617,69 | -40.384.333,92 |
Various conclusions can be drawn from the basic result, among
the principal ones can be mentioned: that the result of the corporation
is unsatisfactory for the high and normal hydrological conditions,
and that it is inadmissible for the low hydrological condition.
The principal cause of the unsatisfactory condition is associated
to the index of the performance of the service (LOLP); this index
assume values close to or equal to unitary, with which the fine
reaches extremely high values (1500 US$/MW).
The corporate strategy should be directed towards improving this
index of performance. In the following item, new economic results
are determined taking into consideration multiple strategies.
3.3.2- Economic Results from Multiple Strategies
The strategies adopted in this alternative are the following:
demand is reduced by 10 %; the fixed cost are increased 20 %;
the sales price is increased 10 %, the maintenance of all the
units is perfomed in the first four periods. Apart from this,
it was chosen to purchase an average de 200 MW of energy from
an outside system in all periods at a cost of 20 US$/MW/h, during
the period of low water inflows. Table 4 also presents these results.
The principal conclusion for this alternative are the following:
the results for high and normal hydrological conditions are considered
satisfactory. The result for the low hydrological condition is
unsatisfactory and requires additional strategies to render it
satisfactory, such as: increase in price, the purchase of a greater
quantity of energy from the external systems, reduction of the
fixed or variable costs, etc.
4 - CONCLUSIONS
The present study presented a model suitable for the strategic
planning of a hydroelectric generation utility. To this end, a
conceptual analysis was made of the different variables and processes
that interact to form the global model and, the results obtained
with the help of the System Dynamics technique were presented
sequentially.
The model strives to equip the electric generation utilities with
a tool to assist in the taking of decisions, both at the level
of the individual áreas as within the strategic planning
of the corporation as a whole.
The results presented indicate some of the possibilities for analysing
corporate strategies. Other analysis may be effected within the
limits established in the model.
It is worth mentioning the great flexibility of the proposed method,
since for the analysis of corporate strategies it is not necessary
to directly handle parameters of the technical model; this is
done automatically at a different level.
5 - REFERENCES
[1] Yarrow, G. 1990. Privatization in Theory and Practice.
Economic Policy, March.
[2] Morozowski, M.; Pereira, M. 1995. Integrated Energy and Power Planning: A Stochastic Programming Approach. Proceedings of the London Business School /IFORS First Joint International Symposium on Energy Models for Policy and Planning, London, England.
[3] Forrester, J. W..1961. Industrial Dynamics, The MIT
Press.
[4] Ford, A. 1995. System Dynamics and Sustainable Development
of the Electric Power Industry. Proceedings of the 1995 International
System Dynamics Conference, Tokyo, Japan.
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