Abstract
The Panama Canal is a critical infrastructure for global trade, and its efficient operation relies on the optimal management of water resources in the Panama Canal System (i.e., Panama Canal Watershed (PCW)). The water resources of the PCW are used not only to pass ships through the canal but also to generate electricity and provide potable water for more than one million residents (i.e., 30% of Panama’s total population). Climate change appears to have increased the volatility of rainfall, especially during El Niño Southern Oscillation (ENSO) phenomenon periods, posing a challenge to maintaining water levels of the system. For instance, the Panama Canal Authority had to reduce daily traffic through the narrow corridor by nearly 40% in the latest 2024 ENSO event. This study presents a multi-reservoir optimization model that aims to maximize the net benefits of the system’s operation, considering conflicting demands for navigation, hydropower generation, and municipal water supply. The model employs Stochastic Dynamic Programming to derive optimal release policies under uncertainty in water inflows. The model derives optimal management policies that balance conflicting navigation, hydropower, and municipal water supply demands by incorporating seasonal variations, economic factors, and operational constraints. Results show that the optimal policy significantly improves system performance: by maintaining the storage level at a useful level, the model improves the water allocation (i.e., municipal withdrawal and hydropower generation) while ensuring efficient navigation.