Strategic Bidding and Equilibria in Coupled Gas and Electricity Markets

TL;DR

This paper models the strategic interactions between gas and electricity markets using an equilibrium problem framework, proposing a specialized algorithm to find market equilibria considering the interdependencies and strategic bidding behaviors.

Contribution

It introduces a novel diagonalization algorithm to solve coupled market equilibria modeled as an equilibrium problem with equilibrium constraints (EPEC).

Findings

The algorithm effectively finds equilibria in coupled gas and electricity markets.

Case studies validate the proposed methodology's accuracy and practicality.

Abstract

The wide adoption of gas fired units and power-to-gas technology brings remarkable interdependency between natural gas and electricity infrastructures. This paper studies the equilibria of coupled gas and electricity energy markets driven by the strategic bidding behavior: each producer endeavours to maximizes its own profit subjecting to the market clearing outcome. The market equilibria is formulated as an equilibrium problem with equilibrium constraints (EPEC). A special diagonalization algorithm (DA) is devised, in which the unilateral equilibria of the gas or electricity market is found in the inner loop given the rival's strategy; the interaction of the two markets are tackled in the outer loop. Case studies on two test systems validates the proposed methodology.