Zhonghua Su, Ruud Egging, Daniel Huppmann, Asgeir Tomasgard
(Working Papers / Centre for Sustainable Energy Studies ; 2)
We develop a multi-horizon stochastic equilibrium model for analyzing energy markets, with particular attention to infrastructure development and renewable energy policies in perfect and imperfect market structures. By decoupling short-term operational decisions feedback from long-term strategic investment decisions, the multi-horizon approach allows to consider long-term and short-term uncertainties while maintaining favorable computational complexity. We illustrate for a representative stylized example how considering long and short-term uncertainty affects infrastructure development and trade patterns and look into the Value of Stochastic Solution (VSS). Although the VSS values are modest, the impact of addressing uncertainty is significant in infrastructure sizing and timing decisions. We illustrate how in a perfect market much higher expansions occur in production, transmission and generation compared to an imperfect market. Independent of market structure, more uncertainty generally favors gas production and gas-fired power generation, with some small but insightful exceptions. As such, the model provides a two-fold contribution to the literature, as it is the first stochastic multi-energy equilibrium model, as well as the first multi-horizon equilibrium model.
Keywords: OR in energy, Stochastic programming, Multi-horizon scenario tree, Generalized Nash equilibrium(GNE), Mixed complementarity problem (MCP)