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Risk Assessment of a Coupled Natural Gas and Electricity Market Considering Dual Interactions: A System Dynamics Model

Lin Wang and Yuping Xing ()
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Lin Wang: Glorious Sun School of Business and Management, Donghua University, Shanghai 200051, China
Yuping Xing: Glorious Sun School of Business and Management, Donghua University, Shanghai 200051, China

Energies, 2022, vol. 16, issue 1, 1-18

Abstract: Because reliance on gas for electricity generation rises over time, the natural gas and electricity markets are highly connected. However, both of them are susceptible to various risk factors that endanger energy security. The intricate interactions among multiple risks and between the two markets render risk assessment more challenging than for individual markets. Taking a systematic perspective, this study first undertook a thorough analysis of the evolution mechanism that indicated the key risk factors and dual interactions, with real-world illustrative examples. Subsequently, a system dynamics model was constructed for understanding the causal feedback structures embedded in the operation of a coupled natural gas–electricity market in the face of risks. Quantitative experiments were conducted by using data from China’s Energy Statistical Yearbook, China’s Statistical Yearbook and other reliable sources to assess the effects of individual risks, depict the evolutionary behavior of coupled markets and compare the risk response strategies. The findings revealed the evolution of dominant risk factors and the aggregated effects of multiple risks in multiple markets, suggesting the need to comprehensively monitor dynamic risks. Moreover, risk factors can propagate from one market to another via interactions, yet it depends on multiple aspects such as the severity of the risk and the intensity of the interactions. Demand compression and emergency natural gas supply behave differently throughout the market’s recovery, necessitating a balance between short-term and long-term risk response strategies.

Keywords: risk assessment; electricity market; natural gas market; system dynamics (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2022
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