The cost of decoupling trade and transport in the European entry-exit gas market with linear physics modeling

Boettger T, Grimm V, Kleinert T, Schmidt M (2022)

Publication Type: Journal article

Publication year: 2022

Journal

European Journal of Operational Research Elsevier

Book Volume: 297

Pages Range: 1095-1111

Journal Issue: 3

DOI: 10.1016/j.ejor.2021.06.034

Abstract

Liberalized gas markets in Europe are organized as entry-exit regimes so that gas trade and transport are decoupled. The decoupling is achieved via the announcement of technical capacities by the transmission system operator (TSO) at all entry and exit points of the network. These capacities can be booked by gas suppliers and customers in long-term contracts. Only traders who have booked capacities up-front can "nominate" quantities for injection or withdrawal of gas via a day-ahead market. To ensure feasibility of the nominations for the physical network, the TSO must only announce technical capacities for which all possibly nominated quantities are transportable. In this paper, we use a four-level model of the entry-exit gas market to analyze possible welfare losses associated with the decoupling of gas trade and transport. In addition to the multilevel structure, the model contains robust aspects to cover the conservative nature of the European entry-exit system. We provide several reformulations to obtain a single-level mixed integer quadratic problem. The overall model of the considered market regime is extremely challenging and we thus have to make the main assumption that gas flows are modeled as potential-based linear flows. Using the derived single-level reformulation of the problem, we show that the feasibility requirements for technical capacities imply significant welfare losses due to unused network capacity. Furthermore, we find that the specific structure of the network has a considerable influence on the optimal choice of technical capacities. Our results thus show that trade and transport are not decoupled in the long term. As a further source of welfare losses and discrimination against individual actors, we identify the minimum prices for booking capacity at the individual nodes. (c) 2021 Elsevier B.V. All rights reserved.

Authors with CRIS profile

Veronika Grimm Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie Thomas Kleinert Economics - Discrete Optimization - Mathematics (EDOM)

Involved external institutions

Universität Trier DE Germany (DE)

How to cite

APA:

Boettger, T., Grimm, V., Kleinert, T., & Schmidt, M. (2022). The cost of decoupling trade and transport in the European entry-exit gas market with linear physics modeling. European Journal of Operational Research, 297(3), 1095-1111. https://dx.doi.org/10.1016/j.ejor.2021.06.034

MLA:

Boettger, T., et al. "The cost of decoupling trade and transport in the European entry-exit gas market with linear physics modeling." European Journal of Operational Research 297.3 (2022): 1095-1111.

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