Energy J. http://doi.org/bfjd (2016)

The need for additional flexible electricity generation due to increasing utilization of intermittent renewables, and possible gas disputes between Russia and Ukraine are examples of changes in the electricity market that feed back into the gas market and vice versa. However, the link and the degree of substitutability between natural gas and electricity systems are largely uncharted. Jan Abrell, from ETH Zurich and Hannes Weigt, from the University of Basel close this gap by developing a coupled dynamic model that illustrates how investment decisions in gas and electricity markets show strong interdependence.

The model was applied to a stylized simulation of the European energy markets that included carbon prices and increases in renewable electricity generation. By altering electricity network investment costs, the optimal expansion of power plants and gas pipelines varies considerably. With cheap electricity network costs, cross-border electricity interconnection in Europe increases significantly together with an increase in large gas-plant investment in Poland, encouraged by low gas-transport costs. In the high transmission costs scenario, more gas-fired plants and pipelines are built between Italy and Slovenia, and in other demand hubs, leading to a reduction in the expansion of electricity networks. It emerges that gas and electricity face mutual interdependence, suggesting that efficient investment evaluations should consider the two markets with a holistic approach.