Optimising the Natural Gas Supply Portfolio of a Gas-Fired Power Producer

The expansion of gas-fired power plants has led to increasing interactions between the natural gas and electricity market. In order to effectively manage risk of volatile energy prices, operators of gas-fired power plants need to take natural gas procurement and power plant resource planning simultaneously into account. An industrial company is considered that owns a gas-fired combined heat and power (CHP) plant. To ensure a stable heat and power supply, the amount of gas needed to operate the CHP plant must be available at any time. Natural gas can be procured by signing supply contracts or by engaging in the natural gas spot market. A two-stage stochastic MILP model is proposed that optimises the gas supply portfolio and the CHP plant operation according to revenue potential in the electricity spot market. Uncertainty of gas and electricity spot prices is addressed by means of stochastic processes. Price risk is explicitly taken into account by the Conditional Value-at-Risk (CVaR). A convex combination of expected total costs and CVaR allows for representing different risk preferences of the decision maker. The efficient performance of the presented approach is illustrated in a case study using the example of German energy markets. The results reveal the significant influence of different risk preferences on the optimal gas supply portfolio composition.