Risk management for integrated power and natural gas systems against extreme weather: A coalitional insurance contract approach

Abstract

Integrated power and natural gas systems (IPGSs) are vulnerable to extreme weather. The system operators are facing risks of huge economic losses. An insurance could be the appropriate approach for system operators to manage and transfer the risks of huge economic losses to the third-party entities. However, conventional standalone insurance design will induce the free-ride phenomenon and the missing of integration incentive in IPGSs. Thus, to bridge the gaps, we proposed a novel coalitional insurance design for the IPGSs against the extreme weather. To control the risk of insurer insolvency, the premium of the coalitional insurance is determined based on the resilience assessment-based actuarial framework. To provide appropriate incentive in inter-energy assistance, the indemnity is allocated by a combined damage-based and assistance-based policy. Asymmetric Nash bargaining is adopted to ensure the fair allocation of indemnity. Favorable properties include budget balanced, low safe loading cost, free-ride averse, and integration beneficial are theoretically and numerically proved. Numerical tests are conducted on the modified IEEE 39-bus Belgium 20-node IPGS to validate the effectiveness of the proposed coalitional insurance contract design.