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Policy Brief / Energy

LDP Academic Roundtable Redesigning Gas and Electricity Markets to Work Together

Author(s): HENRIOT Arthur, VAZQUEZ Miguel, HALLACK Michelle, GLACHANT Jean-Michel

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Due to the significant role already played by gas-fired power plants and the on-going integration of renewables into the existing network, the relationship between the gas and electricity markets is becoming ever closer. As a result, we must consider if the existing gas and electricity market designs can cope with these changes or whether some market redesign is required in gas, electricity or both.

The decision to invest and trade is dependent on existing market designs, particularly concerning trade timeframes and geographical zones. A design which is too weak may create the possibility of cross-subsidies between time or space flexible users and inflexible ones within each of the gas or electricity market design and between them.

With an increasingly close relationship between gas and electricity market designs, the role of the TSOs may have to evolve. If transmission networks are facing a higher industry-specific or cross-industry demand for flexibility, increased coordination between operation and planning may be required from both gas TSOs and electricity TSOs.

Whether the current electricity generation is adequate depends increasingly on the current conditions of access to natural gas. If gas is to play such a significant role in the security of electricity supply, compatibility between long-term arrangements in gas and in electricity markets must be ensured.