Modeling Market Power by Natural Gas Producers and Its Impact on the Power System

Abstract

Strategic behavior by natural gas producers may influence the operation as well as the development of an electricity system. Within this paper a computational game theoretic investment model is presented which allows assessing market power by natural gas producers and its effects on the electricity market under consideration of emission markets. The model is formulated as a mixed complementarity problem. It uses typical time segments to represent both seasonal load fluctuations on the natural gas market and load fluctuations within a day on the electricity market. Investment is possible in natural gas production and LNG infrastructure as well as power plants. A test case is presented covering three regions and simultaneously optimizing power plant dispatch and utilization of transmission lines on the power market as well as supply, transport and storage on the natural gas market. We compute prices, production volumes and power plant utilization for two different market power specifications to show the impact of oligopolistic market behavior.