Valuation of Controllable Devices in Liberalized Electricity Markets

Restructuring and liberalization of electric power markets in recent years present new challenges to network operators. Existing transmission assets are being pushed to their physical limits in order to increase overall utilization of transmission networks. Additionally, demand for electric energy is steadily increasing, which further stresses network components. This leads to congested transmission paths, which cause significant price differences between neighboring regions and hinder free energy trading. Enhancing critical paths is difficult, since investment costs are often large and the time frame from planning to operation of e.g. new lines can often be in the order of decades. One solution to this problem is the installation of controllable devices in the transmission network. These devices help to reduce market inefficiencies by improved power flow control. The motivation for this thesis is the need to assess the economical value of introducing new technology into an existing energy transmission system. A combination of engineering and economic theories is needed to determine the value of a controllable device. The thesis presents a modularized framework for the evaluation of controllable devices in a liberalized electricity market. First, the behavior of the electric power market, the transmission network and the controllable device is modeled using optimization techniques, in order to calculate electricity prices for different system conditions. Second, the economic value of a company operating the device is determined by calculating the cash flows resulting from the price differences and the improved power flow. Case studies applying this framework show the performance of the proposed system.