Strategic bidding of gas-fired units with tanks in coupled electricity and natural gas markets

Abstract

With the increasing interdependence between the electricity and natural gas systems in economy and physics, this paper addresses the problem of developing optimal offering strategies in synchronized electricity–gas markets with step-wise energy offer formats. The gas-fired generators act as price makers in electricity markets and interruptible loads in the natural gas markets. The proposed model considers not only the impact of electricity clearing prices on gas bidding behaviors but also the influence of fuel cost variation on developing optimal electricity bidding curves. A price update method is proposed with the help of gas tanks to suppress price fluctuation. A two-stage trading mechanism is designed for gas-fired generators to optimize bids in electricity and gas markets via an iterative method. These bilinear terms in objectives and constraints are tackled by primal–dual equality conditions and binary expansion method. Then, the mathematical program with equilibrium constraints is converted to the mixed-integer linear program. The diagonalization algorithm is nested in the proposed trading mechanism if there are many leaders in the market instead of just one. Case studies validate the proposed methodology in detail.