A Dynamic Model of the Combined Electricity and Natural Gas Markets

With the shale gas revolution, coal retirements, environmental regulations, and increasing renewable energy resources, the interdependency of natural gas and electricity has grown significantly. Interdependency challenges, such as mismatched market schedules and disparate market operations, require quantitative modeling in order to garner insights into the effectiveness of various solutions. In this paper, a quantitative model with a dynamic market mechanism is proposed to evaluate the effects of the fuel uncertainty of natural gas-fired power plants on Social Welfare. The results of the model show that as fuel uncertainty increases, Social Welfare decreases in a nonlinear manner, with an increasing slope at higher levels of uncertainty. The model also shows that the effect of market mismatch can be mitigated with increase in the level of Demand Response.