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Economic externalities in transmission network expansion planning

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  • Alayo, Hans
  • Rider, Marcos J.
  • Contreras, Javier

Abstract

This paper discusses investing in transmission capacity and its link with investing in generation capacity. Since opportunity costs in transmission and generation capacity are dependent, externalities arise when investment decisions are decentralized. Externalities are market failures which appear when a decision of a particular agent changes another agent's welfare, but not vice versa. When generation and transmission investment decisions are made separately, generation investment introduces negative externalities to transmission planning. A centralized multistage stochastic model is formulated for finding the Pareto optimal solution of investments in transmission and generation capacity. Using the model, we show some examples of externalities in transmission planning for the IEEE 24-bus test system and the Peruvian system. Finally, we found that for the Peruvian system simultaneous optimal planning of generation and transmission capacity gave significant savings, around $585 million, which represents 10% of the total cost.

Suggested Citation

  • Alayo, Hans & Rider, Marcos J. & Contreras, Javier, 2017. "Economic externalities in transmission network expansion planning," Energy Economics, Elsevier, vol. 68(C), pages 109-115.
    • Handle: RePEc:eee:eneeco:v:68:y:2017:i:c:p:109-115
    DOI: 10.1016/j.eneco.2017.09.018
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    References listed on IDEAS

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    1. van der Weijde, Adriaan Hendrik & Hobbs, Benjamin F., 2012. "The economics of planning electricity transmission to accommodate renewables: Using two-stage optimisation to evaluate flexibility and the cost of disregarding uncertainty," Energy Economics, Elsevier, vol. 34(6), pages 2089-2101.
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    Cited by:

    1. Anselm Eicke, Tarun Khanna, and Lion Hirth, 2020. "Locational Investment Signals: How to Steer the Siting of New Generation Capacity in Power Systems?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6), pages 281-304.
    2. Simshauser, Paul, 2024. "On static vs. dynamic line ratings in renewable energy zones," Energy Economics, Elsevier, vol. 129(C).
    3. Simshauser, Paul & Newbery, David, 2024. "Non-firm vs priority access: On the long run average and marginal costs of renewables in Australia," Energy Economics, Elsevier, vol. 136(C).
    4. Simshauser, Paul, 2021. "Renewable Energy Zones in Australia's National Electricity Market," Energy Economics, Elsevier, vol. 101(C).
    5. Paul Simshauser & Farhad Billimoria & Craig Rogers, 2021. "Optimising VRE plant capacity in Renewable Energy Zones," Working Papers EPRG2121, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    6. Quiroga, Daniela & Sauma, Enzo & Pozo, David, 2019. "Power system expansion planning under global and local emission mitigation policies," Applied Energy, Elsevier, vol. 239(C), pages 1250-1264.
    7. Simshauser, P., 2021. "Renewable Energy Zones in Australia’s National Electricity Market," Cambridge Working Papers in Economics 2119, Faculty of Economics, University of Cambridge.
    8. Farrell, Niall & Devine, Mel T. & Soroudi, Alireza, 2018. "An auction framework to integrate dynamic transmission expansion planning and pay-as-bid wind connection auctions," Applied Energy, Elsevier, vol. 228(C), pages 2462-2477.
    9. Simshauser, Paul & Billimoria, Farhad & Rogers, Craig, 2022. "Optimising VRE capacity in Renewable Energy Zones," Energy Economics, Elsevier, vol. 113(C).
    10. Martin Kristiansen & Magnus Korpås & Hossein Farahmand, 2018. "Towards a fully integrated North Sea offshore grid: An engineering‐economic assessment of a power link island," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 7(4), July.

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    More about this item

    Keywords

    Transmission planning; Externalities; Investing in generation;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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