An interactive framework for strategic participation of a price-maker energy hub in the local gas and power markets based on the MPEC method

Abstract

Power-to-gas (P2G) technologies within smart energy hubs (SEH) offer unprecedented operational flexibility to distribution networks. This is achieved by integrating various energy carriers both regionally and locally, particularly in the presence of renewable energy sources (RES). According to this subject, the present work outlines an interactive risk-based model and meticulous mathematical solution to justifiably incorporate the P2G units into the SEH to participate in the local electricity and natural gas markets strategically. As a price-maker prosumer, the SEH utilizes cross-product arbitrage strategies to optimize its proposals for power and gas exchanges in the local markets. The participation model for SEH is developed as a bi-level framework. At the top level, the goal is to maximize SEH's profit while accounting for the risks posed by RES. At the bottom level, the aim is to increase social welfare under network constraints through local market settlements. Finally, a mathematical program with equilibrium constraints (MPEC) is offered as a solution to solve the bi-level model. Using integer disjunctions on the complementarity and slackness criteria and the strong duality theory on the bilinear product terms, a mixed-integer linear programming (MILP) has been derived to approximate the suggested MPEC formulation. It can be concluded from the results that the integration of P2G technologies and the use of mutual product arbitrage in the local electricity and natural gas markets, not only increases the profit of the SEH, but also reduces operating costs and improves social welfare as well as cost-recovery of the entire network.