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The Cost of Decoupling Trade and Transport in the European Entry-Exit Gas Market

Tom Böttger (tom.tb.boettger***at***fau.de)
Veronika Grimm (veronika.grimm***at***fau.de)
Thomas Kleinert (thomas.kleinert***at***fau.de)
Martin Schmidt (martin.schmidt***at***uni-trier.de)

Abstract: Liberalized gas markets in Europe are organized as entry-exit regimes so that gas trade and transport are decoupled. The decoupling is achieved via the announcement of technical capacities by the transmission system operator (TSO) at all entry and exit points of the network. These capacities can be booked by gas suppliers and customers in long-term contracts. Only traders who have booked capacities up-front can "nominate" quantities for injection or withdrawal of gas via a day-ahead market. To ensure feasibility of the nominations for the physical network, the TSO must only announce technical capacities for which all possibly nominated quantities are transportable. In this paper, we use a four-level model of the entry-exit gas market to analyze possible welfare losses associated with the decoupling of gas trade and transport. In addition to the multilevel structure, the model contains robust aspects and a potential-based linear flow model and thus is extremely challenging. We provide several reformulations to obtain a single-level mixed-integer quadratic problem. Using this reformulated problem, we show that the feasibility requirements for technical capacities imply significant welfare losses due to unused network capacity. Furthermore, we find that the specific structure of the network has a considerable influence on the optimal choice of technical capacities. Our results thus show that trade and transport are not decoupled in the long term. As a further source of welfare losses and discrimination against individual actors, we identify the minimum prices for booking capacity at the individual nodes.

Keywords: Entry-Exit Gas Market, Gas Market Design, Multilevel Optimization, Robust Optimization

Category 1: Applications -- OR and Management Sciences

Category 2: Integer Programming ((Mixed) Integer Nonlinear Programming )

Category 3: Robust Optimization


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Entry Submitted: 06/19/2020
Entry Accepted: 06/19/2020
Entry Last Modified: 06/22/2020

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