A multilevel model of the European entry-exit gas market

Abstract

In entry-exit gas markets as they are currently implemented in Europe, network constraints do not affect market interaction beyond the technical capacities determined by the TSO that restrict the quantities individual firms can trade at the market. It is an up to now unanswered question to what extent existing network capacity remains unused in an entry-exit design and to what extent feasible adjustments of the market design could alleviate inefficiencies. In this paper, we offer a four-level modeling framework that is capable of analyzing these issues and provide some first results on the model structure. In order to decouple gas trading from network congestion management, the TSO is required to determine technical capacities and corresponding booking fees at every entry and exit node up front. Firms book those capacities, which gives them the right to charge or discharge an amount of gas at a certain node up to this capacity in every scenario. Beyond these technical capacities and the resulting bookings, gas trade is unaffected by network constraints. The technical capacities have to ensure that transportation of traded quantities is always feasible. We assume that the TSO is regulated and determines technical capacities, fees, and transportation costs under a welfare objective. As a first step we moreover assume perfect competition among gas traders and show that the booking and nomination decisions can be analyzed in a single level. We prove that this aggregated model has a unique solution. We also show that the TSO's decisions can be subsumed in one level as well. If so, the model boils down to a mixed-integer nonlinear bilevel problem with robust aspects. In addition, we provide a first-best benchmark that allows to assess welfare losses that occur in an entry-exit system. Our approach provides a generic framework to analyze various aspects in the context of semi-liberalized gas markets. Therefore, we finally discuss and provide guidance on how to include several important aspects into the approach, such as network and production capacity investment, uncertain data, market power, and intra-day trading.

Structural properties of feasible bookings in the European entry–exit gas market system

“…Since the concept of bookings is at the interface of gas transport and trading, it needs to be studied both from a technical and physical as well as from an economic viewpoint. The latter is, e.g., given in [27], where a mathematical multilevel model of the European entry-exit system is presented that also includes the trading of booking contracts. Other modeling approaches for economic questions in gas markets have been discussed recently in [26].…”

Bookings in the European gas market: characterisation of feasibility and computational complexity results

“…In the following, we briefly sketch the notions of nominations and bookings in the European entry-exit gas market system. For more details we refer the interested reader to [18] and the references therein. In this system, the TSO signs a contract with every supply and demand customer.…”

“…This verification leads to very challenging mathematical problems. A mathematical model of the European entry-exit gas market system taking all these aspects into account is presented in [18]. The authors' approach has a strong economic focus, whereas we put more emphasis on physical and technical aspects of feasible bookings.…”

Closing the gap in linear bilevel optimization: a new valid primal-dual inequality

“…For many real-world problems that require a bilevel or even multilevel modeling, application-specific solution techniques have been developed. This includes but is not limited to fields such as energy markets [8,13,15], pricing problems [18,19], or network interdiction problems [4,10]. In a more general setting in which no problem-specific structure can be exploited, most solution techniques resort to an equivalent single-level reformulation.…”