The efficiency of short run and long run locational signals to coordinate generation location with lumpy transmission investments

This paper addresses the problem of interaction between short run and long run locational signals and the coordination between generation investments and lumpy transmission investments. The short run locational signals we evaluate are sent by nodal pricing and the long run ones are sent by the average participation use-of-the-network tariff. Their joint implementation is also deemed. Numerical simulations are performed on a two-node network evolving during twenty years with increasing demand. The efficiency of these locational signals to coordinate the location of generation with lumpy transmission investments is measured. An independent Transmission System Operator invests to minimize the total cost of the network, that is to say the sum of the cost of congestion with the cost of transmission investments. And a unique generator behaving competitively chooses the location of her investments depending on two elements: the locational difference in generation investment costs and the costs of the network she may pay with short run nodal prices and with the long run average participation tariff. The network tariff varies with the transmission investments. And the transmission capacity greatly influences nodal prices. We find out that neither short run nodal prices nor long run average participation tariffs can thoroughly coordinate efficiently generation and transmission investments because of the lumpiness of transmission line capacities.