Abstract
This paper describes a new approach for optimization and simulation of hydro-thermal systems. The approach mimics how the market is operated and utilizes the same tools as the market players. One of the major complexities in hydrothermal optimization models are caused by the number of hydro storages. The proposed model solves this multidimensionality problem iteratively using price decoupling and a standard hydro scheduling model to schedule each watercourse individually. Each iteration comprises a market simulation phase that simulates new prices based on supply and demand curves and a hydro scheduling phase that calculates new supply curves for the hydro. The model is tested on a hydrothermal system that consists of three large Norwegian watercourses and includes other market options similar to the Nord Pool market.