Proactive Economic Assessment of Transmission Investments in Restructured Electricity Markets

Abstract

In this paper, we introduce a new approach for assessing the social welfare implications of transmission investments based on equilibrium models characterizing the competitive interaction among oligopolistic generation firms. The firms’ decisions concerning generation capacity investments and production are affected by both the transmission investments and the congestion management protocols of the transmission system operator. Our analysis shows that both the magnitude of the welfare gains associated with transmission investments and the location of the best transmission expansions may change when the generation expansion response is taken into consideration.