Study on the promotion of natural gas-fired electricity with energy market reform in China using a dynamic game-theoretic model

Natural gas-fired electricity (NGFE) has gained great attention in China recently. However, the high generation cost leads to the NGFE cannot compete economically with the coal-fired electricity (CFE) when the value of peak power and positive environment externality of NGEF are not considered. Therefore, the market reform of natural gas (NG), including price deregulation, carbon tax and environmental subsidy are of vital importance to promote the penetration of NGFE. In the present study, a dynamic game-theoretic model was developed to analyze the impacts of market reforming for natural gas on the promotion effect of NGFE, in which the hourly real-time pricing (RTP) was applied in both natural gas and electricity markets. Five scenarios were proposed with different policy combinations of pricing mechanism reform, carbon tax and environmental subsidy. Based on the analysis results, it can be concluded that (i) deregulating the NG price, imposing carbon tax and adopting environment subsidy can promote the market penetration of NGFE greatly; and (ii) the market deregulation can increases the share of NGFE to 5.49%, and imposing the carbon tax of 100 RMB/tonne CO2 can raise it further to 7.66%, furthermore if the environmental subsidy of 134.3 RMB/MWh is also included, the share of NGFE can reach 15%.