A Mixed Complementarity Model of European Energy Markets: Using equilibrium modeling to analyze the optimal price and trade volumes of energy commodities in Europe
Energy markets are complex networks of producers, exporters, traders and consumers
characterized by different market structures in each sector. The infrastructural
network connecting the markets plays an important role in determining the
volume of the trade flows and the location of the final consumption.
The market players behavior in an energy market can be described using a game
theoretic approach where each players decision depends on the other market players
decisions. Over the last decades these ideas have evolved and there have been
produced some material where markets for a single commodity are modeled, using
ideas from game theory to describe the players influence on each others decisions.
However, little work has been done analyzing multi-commodity markets with the
same set of tools. Based on existing literature that is written on single-commodity
modeling, we have applied equilibrium programming with complementarity structure
to describe the markets for electricity and natural gas in Northern Europe
through a strategic market model. The complexity level is potentially high, so we
decided to limit ourselves to a deterministic and myopic model without investment
The problem is formulated through a strategic MCP model where each market
participant solves an optimization problem connected through the market clearing
conditions. Besides showing that the model is an MCP we implemented the model
in GAMS and solved it for the gas and electricity market in Northern Europe.
Our results indicates that a Cournot model gives an adequate description of the
electricity and gas market in Northern Europe, and that considerable changes in
production, consumption, traded volumes and prices in one market can lead to
price, quantity and welfare effects in markets far away from the initial cause. We
can also register close links between the markets for electricity and natural gas,
suggesting that agents behavior in one commodity market might affect the other
commodity market and vice versa.
Place, publisher, year, edition, pages
Institutt for industriell økonomi og teknologiledelse , 2011. , 136 p.
ntnudaim:6142, MTIØT Industriell økonomi og teknologiledelse,
IdentifiersURN: urn:nbn:no:ntnu:diva-15073Local ID: ntnudaim:6142OAI: oai:DiVA.org:ntnu-15073DiVA: diva2:473589
Tomasgard, Asgeir, ProfessorEgging, Ruud