Renewable energy production, especially wind and solar power, is characterised by intermittency. The production volume can be predicted, but not controlled. Increased investments in such intermittent production capacity will influence the electricity markets whereby balancing supply and demand will have to be satisfied by thermal units.

"Slow" thermal units, like for example nuclear and lignite units, produce at low costs, but are not able to cost-efficiently adjust energy output. On the other hand, "fast" thermal units like modern coal units, and in particular gas units, have higher production costs, but are able to ramp their production up and down fast and efficiently. This suggests that a higher share of renewable energy will depend on "fast" thermal units, and thus increase the demand for natural gas in the electricity sector.

Our cooperation partner Statoil, the main Norwegian energy company, has an interest in an accurate assessment of the consequences of such a development, because:

• It influences the market potential of natural gas, and
• It influences the profitability of gas-to-power

To prove and quantize the increased market potential of natural gas, we model the electricity market with a so-called Unit Commitment problem. Each unit is modelled by its basic physical and economical properties, placing special care on its ramping speed and on its start-up and shutdown costs. Using historical data and forecasted power demands, a cost-optimal, time-dependent production schedule for all units is calculated.

From this schedule and from the derived electricity prices, the profitability of different unit types can be deduced. This includes, in particular, the profitability of gas units and the market potential of natural gas.

The major drawback of this approach is the missing consideration of the market composition. Most electricity markets, however, are dominated by a relatively small number of electricity generating companies satisfying the bulk of the electricity demand. Such companies arguably would be able to influence the electricity price significantly.

Therefore, we are developing a model based on a game theoretical approach with the goal of capturing this market power.