We present an abstract view of natural gas markets to offer a theoretical discussion on the existence and prove uniqueness of equilibrium solutions. In the abstract model, each player solves a separate profit-maximization optimization problem, the optimality conditions of which can be concatenated together along with market-clearing conditions to give rise to a mixed complementarity problem. The equilibrium-based approach features a general framework that allows for the analysis of a convex combination of price-taking and price-making strategies for producers with a particular Cournot coefficient. As a new motivation for such an analysis, we apply the model to a gas market in transition as is the case in Brazil, which has undergone significant regulatory changes aimed at making it more open and competitive. By demonstrating a sensitivity analysis of market competition on an illustrative Brazilian gas network, we offer new insights to competitive natural gas market modeling. We also describe a new method to solve the resulting linear complementarity problem and demonstrate its use on both the gas market problem as well as second-order cone complementarity problems in water markets.

Since the liberalization of power markets in Europe, almost all investments have required government subsidies. This demonstrates the failure of short-term markets to send the right price signals to investors, but other market failures have been brought to light, among which is market incompleteness. The literature has consistently shown the benefits of risk-sharing instruments to complete a market and boost investments in the absence of market power. Because of entry barriers and legacy assets, however, some producers today might find themselves in a dominant position with the possibility of abusing the market. This paper investigates the impact of completing a market with financial contracts in the presence of market power. Starting from the benchmark case of a capacity-expansion problem in a perfectly competitive and complete market, we formulate a set of equilibrium stochastic models of risk-averse agents investing in a first stage and then operating and trading electricity in a short-term market with possibly two types of failure: incompleteness and market power. We provide existence results and conduct a thorough numerical application inspired by the French case. Contrary to what is reported in the literature, we highlight conditions under which social welfare is worse off when partially completing the market with contracts in the presence of a price-making incumbent. We also show that a strategic incumbent might reduce the volume of hedging contracts to induce physical scarcity. Finally, using the entropic risk measure, we provide a theoretical proof of this result in the case of a monopoly.

Around the world there are large numbers of generation projects waiting in queues for connection to the grid. The wait times are a significant factor in delaying progress on decarbonisation. Connection costs involve a fixed component shared between the generators who are finally connected, but many proposals in the queue will eventually drop out, as more information on costs becomes available. We consider the ways in which entry and withdrawal costs chosen by the system operator can lead to the system optimal set of generation projects both joining the queue and not withdrawing prior to connection.

In wholesale electricity markets, operating reserves are contracts for generation capacity sold by electricity providers to provide the power system with flexibility in the case of N-1-1 contingencies. In 2025, the independent system operator of New England(ISO-NE) will introduce a co-optimized day ahead energy and reserve market that contains four reserve products with a call option settlement based on the difference between the real time price of energy and a strike price set by ISO-NE. Part of this market is a new product, the energy imbalance reserve, which will make up the difference between energy cleared on the day ahead market and the system operator's real time load forecast. ISO-NE's goals for this market are to incentivize the generators in their fleet, mainly reliant on natural gas, to invest in advanced fuel and increase energy purchased on the day ahead to a level equal to the expected real time load. To analyze how this market may or may not achieve these goals, we model the simultaneous equilibrium of multiple risk-averse generators participating in day ahead and real time markets for energy with and without the presence of energy imbalance reserve.