Simulating Arbitrage Optimization for Market Monitoring in Gas and Electricity Transmission Networks

TL;DR

This paper presents a framework combining power and gas market models to detect market power exerted by gas-fired generators through optimization-based analysis.

Contribution

It introduces a novel integrated modeling approach using DC optimal power flow and steady-state optimal gas flow to analyze market manipulation in interconnected energy markets.

Findings

Gas market bids can influence power market outcomes.

Optimization methods can identify market power exertion.

Scenarios demonstrate how generators manipulate markets.

Abstract

We examine market outcomes in energy transport networks with a focus on gas-fired generators, which are producers in a wholesale electricity market and consumers in the natural gas market. Market administrators monitor bids to determine whether a participant wields market power to manipulate the price of energy, reserves, or financial transmission rights. If economic or physical withholding of generation from the market is detected, mitigation is imposed by replacing excessive bids with reference level bids to prevent artificial supply shortages. We review market monitoring processes in the power grid, and present scenarios in small interpretable test networks to show how gas-fired generators can bid in the gas market to alter outcomes in a power market. We develop a framework based on DC optimal power flow (OPF) and steady-state optimal gas flow (OGF) formulations to represent two interacting markets with structured exchange of price and quantity bids. We formulate optimization-based methods to identify market power in a power grid, as well as to identify market conditions that indicate market power being exerted by a generator using gas market bids.