Search

Hydrologic variability can present severe financial challenges for organizations that rely on water for the provision of services, such as water utilities and hydropower producers. While recent decades have seen rapid growth in decision‐support innovations aimed at helping utilities manage hydrologic uncertainty for multiple objectives, support for managing the related financial risks remains limited. However, the mathematical similarities between multi‐objective reservoir control and financial risk management suggest that the two problems can be approached in a similar manner. This paper demonstrates the utility of Evolutionary Multi‐Objective Direct Policy Search for developing adaptive policies for managing the drought‐related financial risk faced by a hydropower producer. These policies dynamically balance a portfolio, consisting of snowpack‐based financial hedging contracts, cash reserves, and debt, based on evolving system conditions. Performance is quantified based on four conflicting objectives, representing the classic tradeoff between "risk" and "return" in addition to decision‐makers' unique preferences toward different risk management instruments. The dynamic policies identified here significantly outperform static management formulations that are more typically employed for financial risk applications in the water resources literature. Additionally, this paper combines visual analytics and information theoretic sensitivity analysis to improve understanding about how different candidate policies achieve their comparative advantages through differences in how they adapt to real‐time information. The methodology presented in this paper should be applicable to any organization subject to financial risk stemming from hydrology or other environmental variables (e.g., wind speed, insolation), including electric utilities, water utilities, agricultural producers, and renewable energy developers. Key Points: Reservoir control and financial risk management share a common multi‐objective decision structure and can be optimized using similar methodsEvolutionary Multi‐Objective Direct Policy Search is used to develop financial risk management policies for a hydropower producerInformation theoretic sensitivity analysis and visual analytics are used to build intuition about how policies adapt to changing conditions [ABSTRACT FROM AUTHOR]

Reservoir operations are central to our ability to manage river basin systems serving conflicting multi-sectoral demands under increasingly uncertain futures. These challenges motivate the need for new solution strategies capable of effectively and efficiently discovering the multi-sectoral tradeoffs that are inherent to alternative reservoir operation policies. Evolutionary many-objective direct policy search (EMODPS) is gaining importance in this context due to its capability of addressing multiple objectives and its flexibility in incorporating multiple sources of uncertainties. This simulation-optimization framework has high potential for addressing the complexities of water resources management, and it can benefit from current advances in parallel computing and meta-heuristics. This study contributes a diagnostic assessment of state-of-the-art parallel strategies for the auto-adaptive Borg Multi Objective Evolutionary Algorithm (MOEA) to support EMODPS. Our analysis focuses on the Lower Susquehanna River Basin (LSRB) system where multiple sectoral demands from hydropower production, urban water supply, recreation and environmental flows need to be balanced. Using EMODPS with different parallel configurations of the Borg MOEA, we optimize operating policies over different size ensembles of synthetic streamflows and evaporation rates. As we increase the ensemble size, we increase the statistical fidelity of our objective function evaluations at the cost of higher computational demands. This study demonstrates how to overcome the mathematical and computational barriers associated with capturing uncertainties in stochastic multiobjective reservoir control optimization, where parallel algorithmic search serves to reduce the wall-clock time in discovering high quality representations of key operational tradeoffs. Our results show that emerging self-adaptive parallelization schemes exploiting cooperative search populations are crucial. Such strategies provide a promising new set of tools for effectively balancing exploration, uncertainty, and computational demands when using EMODPS. [ABSTRACT FROM AUTHOR]

Managing socio-ecological systems is a challenge wrought by competing societal objectives, deep uncertainties, and potentially irreversible tipping points. A classic, didactic example is the shallow lake problem in which a hypothetical town situated on a lake must develop pollution control strategies to maximize its economic benefits while minimizing the probability of the lake crossing a critical phosphorus (P) threshold, above which it irreversibly transitions into a eutrophic state. Here, we explore the use of direct policy search (DPS) to design robust pollution control rules for the town that account for deeply uncertain system characteristics and conflicting objectives. The closed loop control formulation of DPS improves the quality and robustness of key management tradeoffs, while dramatically reducing the computational complexity of solving the multi-objective pollution control problem relative to open loop control strategies. These insights suggest DPS is a promising tool for managing socio-ecological systems with deeply uncertain tipping points. [ABSTRACT FROM AUTHOR]

Globally, the pressures of expanding populations, climate change, and increased energy demands are motivating significant investments in re-operationalizing existing reservoirs or designing operating policies for new ones. These challenges require an understanding of the tradeoffs that emerge across the complex suite of multi-sector demands in river basin systems. This study benchmarks our current capabilities to use Evolutionary Multi-Objective Direct Policy Search (EMODPS), a decision analytic framework in which reservoirs’ candidate operating policies are represented using parameterized global approximators (e.g., radial basis functions) then those parameterized functions are optimized using multi-objective evolutionary algorithms to discover the Pareto approximate operating policies. We contribute a comprehensive diagnostic assessment of modern MOEAs’ abilities to support EMODPS using the Conowingo reservoir in the Lower Susquehanna River Basin, Pennsylvania, USA. Our diagnostic results highlight that EMODPS can be very challenging for some modern MOEAs and that epsilon dominance, time-continuation, and auto-adaptive search are helpful for attaining high levels of performance. The ϵ-MOEA, the auto-adaptive Borg MOEA, and ϵ-NSGAII all yielded superior results for the six-objective Lower Susquehanna benchmarking test case. The top algorithms show low sensitivity to different MOEA parameterization choices and high algorithmic reliability in attaining consistent results for different random MOEA trials. Overall, EMODPS poses a promising method for discovering key reservoir management tradeoffs; however algorithmic choice remains a key concern for problems of increasing complexity. [ABSTRACT FROM AUTHOR]

Optimal management policies for water reservoir operation are generally designed via stochastic dynamic programming (SDP). Yet, the adoption of SDP in complex real-world problems is challenged by the three curses of dimensionality, modeling, and multiple objectives. These three curses considerably limit SDP's practical application. Alternatively, this study focuses on the use of evolutionary multiobjective direct policy search (EMODPS), a simulation-based optimization approach that combines direct policy search, nonlinear approximating networks, and multiobjective evolutionary algorithms to design Pareto-approximate closed-loop operating policies for multipurpose water reservoirs. This analysis explores the technical and practical implications of using EMODPS through a careful diagnostic assessment of the effectiveness and reliability of the overall EMODPS solution design as well as of the resulting Pareto-approximate operating policies. The EMODPS approach is evaluated using the multipurpose Hoa Binh water reservoir in Vietnam, where water operators are seeking to balance the conflicting objectives of maximizing hydropower production and minimizing flood risks. A key choice in the EMODPS approach is the selection of alternative formulations for flexibly representing reservoir operating policies. This study distinguishes between the relative performance of two widely-used nonlinear approximating networks, namely artificial neural networks (ANNs) and radial basis functions (RBFs). The results show that RBF solutions are more effective than ANN ones in designing Pareto approximate policies for the Hoa Binh reservoir. Given the approximate nature of EMODPS, the diagnostic benchmarking uses SDP to evaluate the overall quality of the attained Pareto-approximate results. Although the Hoa Binh test case's relative simplicity should maximize the potential value of SDP, the results demonstrate that EMODPS successfully dominates the solutions derived via SDP. [ABSTRACT FROM AUTHOR]

• Benchmarking multi-objective financial risk portfolios for snow-driven hydropower. • Self-adaptive search can more effectively capture complex financial risk tradeoffs. • Decomposition and reference point algorithms deteriorate and misrepresent tradeoffs. Hydropower generation in the Hetch Hetchy Power System is strongly tied to snowmelt dynamics in the central Sierra Nevada and consequently is particularly financially vulnerable to changes in snowpack availability and timing. This study explores the Hetchy Hetchy Power System as a representative example from the broader class of financial risk management problems that hold promise in helping utilities such as SFPUC to understand the tradeoffs across portfolios of risk mitigation instruments given uncertainties in snowmelt dynamics. An evolutionary multi-objective direct policy search (EMODPS) framework is implemented to identify time adaptive stochastic rules that map utility state information and exogenous inputs to optimal annual financial decisions. The resulting financial risk mitigation portfolio planning problem is mathematically difficult due to its high dimensionality and mixture of nonlinear, nonconvex, and discrete objectives. These features add to the difficulty of the problem by yielding a Pareto front of solutions that has a highly disjoint and complex geometry. In this study, we contribute a diagnostic assessment of state-of-the-art multi-objective evolutionary algorithms' (MOEAs') abilities to support a DPS framework for managing financial risk. We perform comprehensive diagnostics on five algorithms: the Borg multi-objective evolutionary algorithm, Non-dominated Sorting Genetic Algorithm II (NSGA-II), Non-dominated Sorting Genetic Algorithm III (NSGA-III), Reference Vector Guided Evolutionary Algorithm (RVEA), and the Multi-objective Evolutionary Algorithm Based on Decomposition (MOEA/D). The MOEAs are evaluated to characterize their controllability (ease-of-use), reliability (probability of success), efficiency (minimizing model evaluations), and effectiveness (high quality tradeoff representations). Our results show that newer decomposition, reference point, and reference vector algorithms are highly sensitive to their parameterizations (difficult to use), suffer from search deterioration (losing solutions), and have a strong likelihood of misrepresenting key tradeoffs. The results emphasize the importance of using MOEAs with archiving and adaptive search capabilities in order to solve complex financial risk portfolio problems in snow-dependent water-energy systems. [ABSTRACT FROM AUTHOR]