Proactive planning and valuation of transmission investments in restructured electricity markets

Traditional methods of evaluating transmission expansions focus on the social impact of the investments based on the current generation stock which may include firm generation expansion plans. In this paper, we evaluate the social welfare implications of transmission investments based on equilibrium...

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Bibliographic Details
Published in:Journal of regulatory economics 2006-11, Vol.30 (3), p.358-387
Main Authors: Sauma, Enzo E., Oren, Shmuel S.
Format: Article
Language:English
Subjects:
Competition
Demand curves
Economic impact
Economic theory
Electric power
Electricity distribution
Investments
Marginal pricing
Market equilibrium
Market prices
Monopolies
Planning
Regulation
Social impact
Studies
Valuation
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Summary:Traditional methods of evaluating transmission expansions focus on the social impact of the investments based on the current generation stock which may include firm generation expansion plans. In this paper, we evaluate the social welfare implications of transmission investments based on equilibrium models characterizing the competitive interaction among generation firms whose decisions in 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. We illustrate our results using a 30-bus network example.
ISSN:0922-680X
1573-0468
DOI:10.1007/s11149-006-9012-x