General Revenue Adequacy Conditions for Energy Transport Networks

TL;DR

This paper develops a general mathematical framework for nonlinear energy network flows and derives conditions for revenue adequacy, applicable to power and gas pipeline networks.

Contribution

It introduces a formal setting for nonlinear physical network flows and establishes revenue adequacy conditions for both power and gas networks.

Findings

Verified conditions for revenue adequacy in DC and AC power flow.

Extended revenue adequacy analysis to steady-state gas pipeline flow.

Provided a unified approach for nonlinear energy network flow analysis.

Abstract

Optimization is widely used to determine the physical and financial exchange of wholesale electricity in organized markets. Guarantees of solution optimality and feasibility rest largely on convexity, which is not in general a characteristic of the governing equations for power grid and gas pipeline networks. Policy decisions that base the scheduling and locational pricing of electricity transactions on optimization rely on the guarantee of revenue adequacy, which ensures that the market administrator will collect enough payments in congestion rents to settle financial transmission rights. Developing a similar mechanism for locational trade valuation of natural gas also requires assurance that pricing outcomes are revenue adequate, and also cover the costs of gas compressor operation. However, it has been shown that the AC power flow equations are in general non-convex and hence conditions for guaranteeing revenue adequacy in optimal power flow solutions are challenging to generalize. In this study, we develop a general formal mathematical setting for nonlinear physical network flows and examine the conditions for revenue adequacy. The result is verified for DC and AC power flow as well as steady-state gas flow in a pipeline network.