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If you build it, he will come: Anticipative power transmission planning

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  • Pozo, David
  • Contreras, Javier
  • Sauma, Enzo

Abstract

Like in the film Field of Dreams, the sentence “if you build it, he will come” also applies in power systems. In this sense, if a transmission planner suggests building some lines in anticipation of generation capacity investments, then it can induce generation companies to invest in a more socially efficient manner. In this paper, we solve for the optimal way of doing this anticipative power transmission planning. Inspired in the proactive transmission planning model proposed by Sauma and Oren (2006) we formulate a mixed integer linear programming optimization model that integrates transmission planning, generation investment, and market operation decisions and propose a methodology to solve for the optimal transmission expansion. Contrary to the proactive methodology proposed by Sauma and Oren (2006), our model solves the optimal transmission expansion problem anticipating both generation investment and market clearing. We use the marginalist theory with production cost functions inversely related to the installed capacity in a perfectly competitive electricity market and we find all possible generation expansion pure Nash equilibria. We illustrate our results using 3-node and 4-node examples.

Suggested Citation

  • Pozo, David & Contreras, Javier & Sauma, Enzo, 2013. "If you build it, he will come: Anticipative power transmission planning," Energy Economics, Elsevier, vol. 36(C), pages 135-146.
    • Handle: RePEc:eee:eneeco:v:36:y:2013:i:c:p:135-146
    DOI: 10.1016/j.eneco.2012.12.007
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    References listed on IDEAS

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    1. David G. Luenberger & Yinyu Ye, 2008. "Linear and Nonlinear Programming," International Series in Operations Research and Management Science, Springer, edition 0, number 978-0-387-74503-9, January.
    2. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
    3. Enzo Sauma & Shmuel Oren, 2006. "Proactive planning and valuation of transmission investments in restructured electricity markets," Journal of Regulatory Economics, Springer, vol. 30(3), pages 358-387, November.
    4. Frederic H. Murphy & Yves Smeers, 2005. "Generation Capacity Expansion in Imperfectly Competitive Restructured Electricity Markets," Operations Research, INFORMS, vol. 53(4), pages 646-661, August.
    5. Enzo Sauma & Shmuel Oren, 2006. "Proactive planning and valuation of transmission investments in restructured electricity markets," Journal of Regulatory Economics, Springer, vol. 30(3), pages 261-290, November.
    6. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
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    More about this item

    Keywords

    Mathematical Program subject to Equilibrium Constraints (MPEC); Equilibrium Problem subject to Equilibrium Constraints (EPEC); Nash equilibrium; Power transmission planning; Power systems economics; Anticipative network planning;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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