The use of natural gas to produce electricity is increasing dramatically throughout the United States. This trend is being driven by the cost and environmental advantages of gas-fired generation compared to coal. This increase has also highlighted the need for greater coordination between wholesale gas and electricity markets. Notably, insufficient coordination limits pipeline operators from providing accurate guidance on the quantities of gas they will be able to deliver to gas-fired generators each hour. Generators therefore overschedule gas deliveries to ensure they have enough resources to operate. At the same time, the gas and electric system price-formation mechanisms are poorly aligned and often place gas-fired generators at risk of operating their assets at a loss. The current inefficiency will only increase with the growing use of natural gas for electricity generation. While the two wholesale markets have operated for decades, closer coordination could save money, improve efficiencies, and avert potential disruptions.
Project Innovation + Advantages:
The team led by Newton Energy Group will lead the Gas-Electric Co-Optimization (GECO) project to improve coordination of wholesale natural gas and power operators both at the physical and market levels. The team's approach uses mathematical methods and computational techniques that have revolutionized the field of optimal control. These methods will be applied to natural gas pipeline networks, and the final deliverable will consist of three major components. First, they will model and optimize intra-day pipeline operations represented by realistic models of gas network flow. Next, the team will develop economic theory and computation algorithms for the pricing of natural gas delivered to end users, in particular to gas-fired power plants. Finally, they will combine these two analytical components to design practical market mechanisms for efficient coordination of gas and electric systems. The goal of efficient market design is to develop a mechanism under which access to pipeline capacity will be provided on the basis of its economic value as determined by gas buyers and sellers, and not on the current allocation of physical capacity rights. The tool guarantees natural gas will be available when power plants need it, and that the power produced can be sold to consumers at a price sufficient to cover the cost of the natural gas.
If successful, innovations from the GECO technology will develop novel mathematical modeling and optimization methods to control operation of gas pipelines and design market mechanisms for coordinated operations of gas and electric networks.
Improved coordination of these networks will increase energy resiliency and reliability, while reducing the cost of natural gas supply for electricity generation.
Natural gas generation can displace coal-fired power, support integration of renewable resources, and reduce emissions of carbon dioxide and other pollutants.
The team’s innovation could streamline operations and ultimately save costs for natural gas and electricity consumers. A 1% reduction in wholesale natural gas prices could save U.S. consumers over two billion dollars per year.