Alternative Economic Criteria and Proactive Planning for Transmission Investment in Deregulated Power Systems

Abstract

This chapter advocates the use of a multistage game model for transmission expansion as a new planning paradigm that incorporates the effects of strategic interaction between generation and transmission investments and the impact of transmission on spot energy prices. The paper also examines the policy implication of different conflicting incentives for generation and transmission investments. To this end, the authors formulate transmission planning as an optimization problem under alternative conflicting objectives. The inter-relationship between generation and transmission investment as it affects social value of transmission capacity is investigated. A simple illustrative example is provided to investigate the policy implications of divergent expansion plans resulting from the planer’s level of anticipation of strategic responses and co-optimization of generation and transmission investment. First, it is found that the transmission expansion plans may be very sensitive to supply and demand parameters and hence will be affected by the assumption regarding generation investment and costs. Secondly, it is shown that the transmission investment has an important distributional impact, inducing acute conflicts of interests among market participants. To overcome this problem, a three-stage game theoretic model for transmission investment is proposed to foster proactive transmission expansion. A comparison between proactive and reactive network planners is made. It is stated that unlike the former, the reactive network planner does not account for the ability of generation investment to respond strategically in response to transmission expansion.