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Strategic capacity expansion planning in hydro-dominated power systems : Insights from the Nordics

Cox, Daniel M. ; Damasceno, Davi Rodrigues ; Hagsten, Johan ; Hellesen, Carl ; Hjelmeland, Martin ; Jurasz, Jakub ; Kies, Alexander ; Lagnelöv, Oscar ; Lundberg, Martin LU and Lundström, Lukas , et al. (2026) In Energy 344.
Abstract

Conventional capacity expansion planning (CEP) relies on a perfect-foresight planning horizon and linear investment optimisation, which fail to capture the non-linear dynamics of electricity markets. In the Nordics, hydro-related weather variability plays a critical role in maintaining the robustness of the power system. This paper addresses the intra-year perfect-foresight limitation in current CEP models, focusing on hydro-dominated power systems with substantial hydro reservoir capacity, using Sweden's decarbonisation pathway toward 2050 as a case study. Our approach provides a robust long-term CEP framework by leveraging short-term price forecasts to guide storage dispatch decisions. The proposed CEP model has been historically... (More)

Conventional capacity expansion planning (CEP) relies on a perfect-foresight planning horizon and linear investment optimisation, which fail to capture the non-linear dynamics of electricity markets. In the Nordics, hydro-related weather variability plays a critical role in maintaining the robustness of the power system. This paper addresses the intra-year perfect-foresight limitation in current CEP models, focusing on hydro-dominated power systems with substantial hydro reservoir capacity, using Sweden's decarbonisation pathway toward 2050 as a case study. Our approach provides a robust long-term CEP framework by leveraging short-term price forecasts to guide storage dispatch decisions. The proposed CEP model has been historically validated and captures the dynamics of seasonal storage hydro reservoirs, achieving deviations of less than €1/MWh in annual average prices across all Swedish bidding zones. A comparative analysis between the proposed and conventional CEP models (cGrid and GenX), together with the Ten-Year Network Development Plan (TYNDP 2024), reveals a broad alignment in capacity expansion and dispatch under an average weather year. However, in a problematic weather year, with correlated low wind output and reduced hydro inflows, significant divergences emerge, with half-year price averages differing by up to ±€40/MWh. These discrepancies are mainly driven by contrasting approaches to hydro reservoir modelling. Notably, the proposed CEP model recommends a 37.5 % increase in firm nuclear capacity to mitigate supply shortages, whereas the conventional CEP suggests a 4.4 % reduction, thereby increasing reliance on weather-dependent resources. These findings underscore the limitations of perfect-foresight CEP in power systems with substantial seasonal storage resources.

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publishing date
type
Contribution to journal
publication status
published
subject
keywords
Extreme weather years, Long-term power system planning, Multiple weather years, Perfect-foresight, Power market modelling, Seasonal storage
in
Energy
volume
344
article number
139771
publisher
Elsevier
external identifiers
  • scopus:105025784544
ISSN
0360-5442
DOI
10.1016/j.energy.2025.139771
language
English
LU publication?
yes
id
1b1a5363-5c46-49e1-a08e-48daa722efd2
date added to LUP
2026-03-09 14:04:19
date last changed
2026-03-09 14:05:28
@article{1b1a5363-5c46-49e1-a08e-48daa722efd2,
  abstract     = {{<p>Conventional capacity expansion planning (CEP) relies on a perfect-foresight planning horizon and linear investment optimisation, which fail to capture the non-linear dynamics of electricity markets. In the Nordics, hydro-related weather variability plays a critical role in maintaining the robustness of the power system. This paper addresses the intra-year perfect-foresight limitation in current CEP models, focusing on hydro-dominated power systems with substantial hydro reservoir capacity, using Sweden's decarbonisation pathway toward 2050 as a case study. Our approach provides a robust long-term CEP framework by leveraging short-term price forecasts to guide storage dispatch decisions. The proposed CEP model has been historically validated and captures the dynamics of seasonal storage hydro reservoirs, achieving deviations of less than €1/MWh in annual average prices across all Swedish bidding zones. A comparative analysis between the proposed and conventional CEP models (cGrid and GenX), together with the Ten-Year Network Development Plan (TYNDP 2024), reveals a broad alignment in capacity expansion and dispatch under an average weather year. However, in a problematic weather year, with correlated low wind output and reduced hydro inflows, significant divergences emerge, with half-year price averages differing by up to ±€40/MWh. These discrepancies are mainly driven by contrasting approaches to hydro reservoir modelling. Notably, the proposed CEP model recommends a 37.5 % increase in firm nuclear capacity to mitigate supply shortages, whereas the conventional CEP suggests a 4.4 % reduction, thereby increasing reliance on weather-dependent resources. These findings underscore the limitations of perfect-foresight CEP in power systems with substantial seasonal storage resources.</p>}},
  author       = {{Cox, Daniel M. and Damasceno, Davi Rodrigues and Hagsten, Johan and Hellesen, Carl and Hjelmeland, Martin and Jurasz, Jakub and Kies, Alexander and Lagnelöv, Oscar and Lundberg, Martin and Lundström, Lukas and McKenna, Joseph T.K. and Norberg, Per and Nøland, Jonas Kristiansen and Llisterri, Albert Payaró and Qvist, Staffan and Svanström, Sebastian and Såmark-Roth, Anton and Yang, Ying and Hesamzadeh, Mohammad Reza and Tjernberg, Lina Bertling}},
  issn         = {{0360-5442}},
  keywords     = {{Extreme weather years; Long-term power system planning; Multiple weather years; Perfect-foresight; Power market modelling; Seasonal storage}},
  language     = {{eng}},
  month        = {{02}},
  publisher    = {{Elsevier}},
  series       = {{Energy}},
  title        = {{Strategic capacity expansion planning in hydro-dominated power systems : Insights from the Nordics}},
  url          = {{http://dx.doi.org/10.1016/j.energy.2025.139771}},
  doi          = {{10.1016/j.energy.2025.139771}},
  volume       = {{344}},
  year         = {{2026}},
}