A multiple system level modeling approach to coupled energy markets: Incentives for combined heat and power generation at the plant, city and regional energy system levels

Journal article, 2022

The energy system can be subdivided into interconnected structural levels with differing boundary conditions and objectives. For heat and power generation, these levels may be the: electricity price area (regional); heat price area (city); and production site (power plant). This work presents a multi-system modeling approach for the analysis of investments and operation of combined heat and power (CHP) plants, as optimized on a regional, city, or production site energy system level. The modeling framework, comprising three energy system optimization models at the respective levels, is applied to a case study of Sweden, electricity price area SE3. The modeling levels are optimized separately but linked through electricity and heat prices. The results show that optimized CHP plant investments and operation on the three levels can both align and differ, depending on conditions. With a low biomass price and moderate congestion in transmission capacity into the city, the results from the three levels generally align. Differences arise if the biomass price is increased, which impacts the competitiveness of CHP plants in the region, while city-level CHP investments are mainly determined by the local heat demand and less-sensitive to external changes. The differences indicate a risk for diverging expectations between system levels.