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 equilibriummodels 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. An incorrect version of this article was published online. The correct version is given here. The online version of the original article can be found at http://dx.doi.org/10.1007/s11149-006-9003-y E. E. Sauma (B) Industrial and Systems Engineering Department Pontificia Universidad Católica de Chile, Av. Vicuña Mackenna # 4860, Raúl Deves Hall, Piso 3, Macul, Santiago, Chile e-mail: [email protected] S. S. Oren Industrial Engineering and Operations Research Department, University of California at Berkeley, 4141 Etcheverry Hall, Berkeley, CA 94720, USA e-mail: [email protected] Proactive planning and valuation of transmission investments 359