Strategic investments and portfolio management in interdependent low-carbon electricity and natural gas markets

Abstract

Addressing global warming necessitates carbon emissions reduction and renewable energy integration within the energy sector. Gas-Fired Power Plants (GFPP) are appealing to investors due to their low emissions and operational flexibility, which are considered necessary characteristics within low-carbon power systems with increasing renewable energy uncertainty. Investing in GFPPs presents intricate challenges due to the increasingly interdependent electricity and natural gas markets, especially in the light of a low-carbon economy. This work addresses these challenges for a strategic agent by proposing a bi-level optimization framework. The upper-level model derives the optimal electricity portfolio management regarding new investments and strategic biddings, while in the lower-level model, the electricity and gas markets are cleared sequentially under a Carbon Emission Trading Scheme (CETS). Case studies on a Pennsylvania-New Jersey- Maryland (PJM) 5-bus power system and an IEEE 24-bus test system demonstrate the applicability and efficacy of the proposed model in capturing the impact of a transitional integrated market framework on GFPPs investments. Also, introducing stochasticity to the model provides a better insight into the contrasting effects of emission allowance trading and gas prices on investment and bidding strategies.