Storage and Investments in a Combined Energy Network Model

Hannes Weigt and Jan Abrell

No 4319, EcoMod2012 from EcoMod

Abstract: Natural gas plays an important role in the future development of electricity markets as it is the least emission intensive fossil generation option while additionally providing the needed flexibility in plant operation to deal with intermitted renewable generation. As both the electricity and the natural gas market rely on networks, congestion on one market may lead to changes on another. This influence has been analyzed by Abrell and Weigt (2010) for a static partial equilibrium market model setting showing upstream and downstream feedback effects in a stylized European framework. The objective of this paper is to extend the static model by incorporating dynamic restrictions – particularly seasonal and daily demand variations, natural gas storage, and pumped hydro storage – and an investment representation to evaluate the interaction between both network markets under realistic market conditions.Our approach is based on the static model of Abrell and Weigt (2010) which incorporates directed pipeline flows for the natural gas market and a DC load flow approach for the electricity market in perfectly competitive market environment. We extend the existing approach by firstly incorporating the time dimension: The natural gas market is largely characterized by seasonal patterns whereas the electricity market is defined by daily load levels which requires a matching of the two time frames. Furthermore, the storage options for the two markets are included as storage operators: seasonal storage for natural gas and pumped hydro for electricity. Given this basic dynamic setting in a second step investment options are included. The investment options include the extension of natural gas and electricity network capacities as well as storage facilities in both markets and investment in new natural gas generation capacities. The dynamic model will be applied to a stylized representation of the European market addressing potential future applications and developments via a scenario analysis.The static model approach provides feedback effects due to congestion and flow patterns both in respect to the fact that the electricity market has an influence on the natural gas network and vice versa, as well as that these impacts can lead to higher or lower regional prices accordingly. Within the dynamic setting we evaluate under which conditions these feedback effects occur and whether they are a minor or major driving force of market results. Furthermore, the model allows analyzing the substitution possibilities between electricity and natural gas investments and whether the storability of natural gas can provide benefits for the electricity market. We expect that investments in natural gas infrastructure become a potential alternative for electricity grid investments when a high share of intermitted renewable generation enters the electricity market. Likewise we expect that investments in electricity infrastructure provide a safeguard in case of supply shocks on the natural gas market.

Keywords: Europe; Energy and environmental policy; Regional modeling (search for similar items in EconPapers)
Date: 2012-07-01
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:ekd:002672:4319

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