Power Transmission Capacity Expansion in a Market Driven Environment with Application to the Italian Electricity Market

We introduce a model intended for the analysis of the upgrade of the national transmission grid which explicitly accounts for responses given by the power generating companies in terms of plant expansion. The problem is modeled as a bilevel program with mixed integer structure in both, upper and lower level. Upper level is defined by the transmission company problem which has to decide on how to upgrade the network so to avoid congestions. Lower level models the reactions of generating companies, which take a decision on new facilities and power output, and market operator which strikes a new balance between demand and supply providing new zonal prices.