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A Profit-Maximizing Approach for Transmission Expansion Planning Using a Revenue-Cap Incentive Mechanism

Author

Listed:
  • Mohammad Reza Hesamzadeh
  • Juan Rosellón
  • Steven A. Gabriel

Abstract

This paper proposes an incentive mechanism for transmission expansion planning. The mechanism is a bilevel program. The upper level is a profit-maximizing transmission company (Transco) which expands its transmission system while endogenously predicts and influences the generation investment. The lower level is the optimal generation dispatch and investment. The Transco funds its transmission investment costs by collecting merchandising surplus and charging a fixed fee to consumers. The Transco is subject to a revenue cap set by the regulator. This mechanism is formulated as a mixed-integer, quadratically-constrained program (MIQCP) and applied to modified Garver and IEEE 24-node systems. The results of proposed approach have been compared with the welfare-maximum benchmark and cases of Transco with cost-plus regulation and no regulation. In all tested cases, the proposed approach results in welfare-maximum outcomes while the other regulatory approaches fail to produce welfare-maximum outcomes. The profit-maximizing approach has also been successful in cases where transmission investment is driven by demand growth and reactive Transco.

Suggested Citation

  • Mohammad Reza Hesamzadeh & Juan Rosellón & Steven A. Gabriel, 2015. "A Profit-Maximizing Approach for Transmission Expansion Planning Using a Revenue-Cap Incentive Mechanism," Discussion Papers of DIW Berlin 1470, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1470
    as

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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.500751.de/dp1470.pdf
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    References listed on IDEAS

    as
    1. Thomas-Olivier Leautier, 2000. "Regulation of an Electric Power Transmission Company," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 61-92.
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    4. Makoto Tanaka, 2007. "Extended Price Cap Mechanism for Efficient Transmission Expansion under Nodal Pricing," Networks and Spatial Economics, Springer, vol. 7(3), pages 257-275, September.
    5. Vogelsang, Ingo, 2001. "Price Regulation for Independent Transmission Companies," Journal of Regulatory Economics, Springer, vol. 20(2), pages 141-165, September.
    6. Schill, Wolf-Peter & Egerer, Jonas & Rosellón, Juan, 2015. "Testing Regulatory Regimes for Power Transmission Expansion with Fluctuating Demand and Wind Generation," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 47(1), pages 1-28.
    7. Tarjei Kristiansen & Juan Rosellón, 2006. "A Merchant Mechanism for Electricity Transmission Expansion," Journal of Regulatory Economics, Springer, vol. 29(2), pages 167-193, March.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    revenue-cap regulation; transmission planning; electricity;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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