Bi-Level Strategic Bidding Model of Gas-fired Units in Interdependent Electricity and Natural Gas Markets

Abstract

The increasing penetration of renewables tends to demand more flexibility from gas-fired units to maintain system reliability, which significantly strengthens the interdependency between the electricity and the natural gas markets. To this end, intra-day gas market trading may be necessary, and a completely deregulated natural gas market may emerge in the future. As the interdependency between the electricity and the natural gas markets keeps growing, this paper proposes a bi-level strategic bidding model to study the market behaviors of the gas-fired unit, which simultaneously acts as a strategic power producer in the electricity market and a strategic gas buyer in the natural gas market. The upper-level problem maximizes the profit of the gas-fired unit, and the two lower-level problems respectively model the market-clearings of the electricity and the natural gas markets. The upper and lower levels interact through locational marginal prices of electricity and natural gas. The proposed bi-level optimization model is converted to a mathematical problem with equilibrium constraint (MPEC). Then it is transformed into a mixed-integer second-order-cone programming (MISOCP) for efficient calculation. Numerical results demonstrate the proposed methodology is capable of mimicking the market-clearing process and strategic behaviors of the gas-fired unit in the interdependent energy markets effectively.