Endogenous Investment Decisions in Natural Gas Equilibrium Models with Logarithmic Cost Functions
The liberalisation of the natural gas markets and the importance of natural gas as a transition fuel to a low-carbon economy have led to the development of several large-scale equilibrium models in the last decade. These models combine long-term market equilibria and investments in infrastructure while accounting for market power by certain suppliers. They are widely used to simulate market outcomes given different scenarios of demand and supply development, environmental regulations and investment options. In order to capture the specific characteristics of natural gas production, most of these models apply a logarithmic production cost function. However, no model has so far combined this cost function type with endogenous investment decisions in production capacity. Given the importance of capacity constraints in the determination of the natural gas supply, this is a serious shortcoming of the current literature. This paper provides a proof that combining endogenous investment decisions and a logarithmic cost function yields indeed a convex minimization problem, paving the way for an important extension of current state-of-the-art equilibrium models.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.diw.de/en
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ferris, Michael C. & Munson, Todd S., 2000. "Complementarity problems in GAMS and the PATH solver," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 165-188, February.
- Ibrahim Abada & Steven Gabriel & Vincent Briat & Olivier Massol, 2013.
"A Generalized Nash–Cournot Model for the Northwestern European Natural Gas Markets with a Fuel Substitution Demand Function: The GaMMES Model,"
Networks and Spatial Economics,
Springer, vol. 13(1), pages 1-42, March.
- Ibrahim Abada & Vincent Briat & Steve A. Gabriel & Olivier Massol, 2011. "A Generalized Nash-Cournot Model for the North-Western European Natural Gas Markets with a Fuel SubstitutionDemand Function: The GaMMES Model," EconomiX Working Papers 2011-8, University of Paris West - Nanterre la Défense, EconomiX.
- Gabriel, Steven A. & Zhuang, Jifang & Egging, Ruud, 2009. "Solving stochastic complementarity problems in energy market modeling using scenario reduction," European Journal of Operational Research, Elsevier, vol. 197(3), pages 1028-1040, September.
- Lise, Wietze & Hobbs, Benjamin F., 2008. "Future evolution of the liberalised European gas market: Simulation results with a dynamic model," Energy, Elsevier, vol. 33(7), pages 989-1004.
- Rolf Golombek & Eystein Gjelsvik & Knut Einar Rosendahl, 1995. "Effects of Liberalizing the Natural Gas Markets in Western Europe," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 85-112.
- S. Siddiqui & S. Gabriel, 2013. "An SOS1-Based Approach for Solving MPECs with a Natural Gas Market Application," Networks and Spatial Economics, Springer, vol. 13(2), pages 205-227, June.
- Egging, Ruud, 2013. "Benders Decomposition for multi-stage stochastic mixed complementarity problems – Applied to a global natural gas market model," European Journal of Operational Research, Elsevier, vol. 226(2), pages 341-353.
- Ruud Egging & Franziska Holz & Steven A. Gabriel, 2009. "The World Gas Model: A Multi-Period Mixed Complementarity Model for the Global Natural Gas Market," Discussion Papers of DIW Berlin 959, DIW Berlin, German Institute for Economic Research.
When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp1253. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek)
If references are entirely missing, you can add them using this form.