The importance of market interdependencies in modeling energy systems – The case of the European electricity generation market

The analysis of complex electricity generation systems such as the European one require large scale models based on extensive databases of the relevant infrastructures. Such models are increasingly used to assist policymaking by developing scenarios to investigate the impact of certain policies on generation capacities, investments and prices. The continuing liberalization and interconnection of energy markets thereby requires the considerations of multiple interdependencies with other markets. Most models, however, do not take this into account. This paper develops and applies a large scale electricity investments and dispatch and natural gas market dispatch model to highlight the importance of recognizing interdependencies between power generation and the gas market. In an exemplary analysis, it is demonstrated that seasonal gas price patterns resulting from temperature-dependent household gas demand have a significant impact on the competitiveness of gas-fired power stations in competition with other technologies. Spatially, we show that competitive cost-based gas prices would lead to a relocation of such plants closer to the sources of natural gas.

Graphical abstractFigure optionsDownload full-size imageDownload as PowerPoint slideHighlights► Building integrated electricity and natural gas market model for Europe. ► High temporal and spatial granularity for both markets. ► Simulation of integrated vs. non-integrated model highlights effects. ► Both commodities favorable characteristic determine efficient usage. ► Increasing relevance for policy scenarios in liberalized gas markets.