Nonconvex Equilibrium Models for Gas Market Analysis: Failure of Standard Techniques and Alternative Modeling Approaches

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Publication Details

Author(s): Grimm V, Grübel J, Schewe L, Schmidt M, Zöttl G
Publication year: 2017
Language: English


Abstract


This paper provides a first approach to assess gas market interaction on a network with nonconvex flow models. In the simplest possible setup that adequately reflects gas transport and market interaction, we elaborate on the relation of the solution of a simultaneous competitive gas market game, its corresponding mixed nonlinear complementarity problem (MNCP), and a first best benchmark. We provide conditions under which the solution of the simultaneous game is also the solution of the corresponding MNCP. However, equilibria cannot be determined by the MNCP as the transmission system operator's (TSO’s) first-order conditions are insufficient, which goes back to nonconvexities of the gas flow model. This also implies that the welfare maximization problem may have multiple solutions that sometimes do not even coincide with any of the market equilibria. Our analysis shows that, even in the absence of strategic firms, market interaction fails to implement desirable outcomes from a welfare perspective due to the TSO’s incentive structure. We conclude that the technical environment calls for a market design that commits the TSO to a welfare objective through regulation and propose a design where the market solution corresponds to a welfare maximum and vice versa.



FAU Authors / FAU Editors

Grimm, Veronika Prof. Dr.
Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie
Grübel, Julia
Lehrstuhl für Wirtschaftsmathematik
Schewe, Lars Prof. Dr.
Lehrstuhl für Wirtschaftsmathematik
Schmidt, Martin Prof. Dr.
Juniorprofessur für Optimierung von Energiesystemen
Zöttl, Gregor Prof. Dr.
Professur für Volkswirtschaftslehre


How to cite

APA:
Grimm, V., Grübel, J., Schewe, L., Schmidt, M., & Zöttl, G. (2017). Nonconvex Equilibrium Models for Gas Market Analysis: Failure of Standard Techniques and Alternative Modeling Approaches.

MLA:
Grimm, Veronika, et al. Nonconvex Equilibrium Models for Gas Market Analysis: Failure of Standard Techniques and Alternative Modeling Approaches. 2017.

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Last updated on 2018-19-04 at 04:25