Transmission and wind investment in a deregulated electricity industry

Lajos Maurovich-Horvat; Trine Krogh Boomsma; Afzal S. Siddiqui

doi:10.1109/TPWRS.2014.2367107

Transmission and wind investment in a deregulated electricity industry

Lajos Maurovich-Horvat, Trine Krogh Boomsma, Afzal S. Siddiqui

Department of Mathematical Sciences

29 Citations (Scopus)

969 Downloads (Pure)

Abstract

Adoption of dispersed renewable energy technologies requires transmission network expansion. Besides the transmission system operator (TSO), restructuring of electricity industries has introduced a merchant investor (MI), who earns congestion rents from constructing new lines. We compare these two market designs via a stochastic bi-level programming model that has either the MI or the TSO making transmission investment decisions at the upper level and power producers determining generation investment and operation at the lower level while facing wind power variability. We find that social welfare is always higher under the TSO because the MI has incentive to boost congestion rents by restricting capacities of transmission lines. Such strategic behavior also limits investment in wind power by producers. However, regardless of the market design (MI or TSO), when producers behave à la Cournot, a higher proportion of energy is produced by wind. In effect, withholding of generation capacity by producers prompts more transmission investment since the TSO aims to increase welfare by subsidizing wind and the MI creates more flow to maximize profit.

Original language	English
Journal	I E E E Transactions on Power Systems
Volume	30
Issue number	3
Pages (from-to)	1633-1643
ISSN	0885-8950
DOIs	https://doi.org/10.1109/TPWRS.2014.2367107
Publication status	Published - 1 May 2015

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title = "Transmission and wind investment in a deregulated electricity industry",

abstract = "Adoption of dispersed renewable energy technologies requires transmission network expansion. Besides the transmission system operator (TSO), restructuring of electricity industries has introduced a merchant investor (MI), who earns congestion rents from constructing new lines. We compare these two market designs via a stochastic bi-level programming model that has either the MI or the TSO making transmission investment decisions at the upper level and power producers determining generation investment and operation at the lower level while facing wind power variability. We find that social welfare is always higher under the TSO because the MI has incentive to boost congestion rents by restricting capacities of transmission lines. Such strategic behavior also limits investment in wind power by producers. However, regardless of the market design (MI or TSO), when producers behave {\`a} la Cournot, a higher proportion of energy is produced by wind. In effect, withholding of generation capacity by producers prompts more transmission investment since the TSO aims to increase welfare by subsidizing wind and the MI creates more flow to maximize profit.",

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T1 - Transmission and wind investment in a deregulated electricity industry

AU - Maurovich-Horvat, Lajos

AU - Boomsma, Trine Krogh

AU - Siddiqui, Afzal S.

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N2 - Adoption of dispersed renewable energy technologies requires transmission network expansion. Besides the transmission system operator (TSO), restructuring of electricity industries has introduced a merchant investor (MI), who earns congestion rents from constructing new lines. We compare these two market designs via a stochastic bi-level programming model that has either the MI or the TSO making transmission investment decisions at the upper level and power producers determining generation investment and operation at the lower level while facing wind power variability. We find that social welfare is always higher under the TSO because the MI has incentive to boost congestion rents by restricting capacities of transmission lines. Such strategic behavior also limits investment in wind power by producers. However, regardless of the market design (MI or TSO), when producers behave à la Cournot, a higher proportion of energy is produced by wind. In effect, withholding of generation capacity by producers prompts more transmission investment since the TSO aims to increase welfare by subsidizing wind and the MI creates more flow to maximize profit.

AB - Adoption of dispersed renewable energy technologies requires transmission network expansion. Besides the transmission system operator (TSO), restructuring of electricity industries has introduced a merchant investor (MI), who earns congestion rents from constructing new lines. We compare these two market designs via a stochastic bi-level programming model that has either the MI or the TSO making transmission investment decisions at the upper level and power producers determining generation investment and operation at the lower level while facing wind power variability. We find that social welfare is always higher under the TSO because the MI has incentive to boost congestion rents by restricting capacities of transmission lines. Such strategic behavior also limits investment in wind power by producers. However, regardless of the market design (MI or TSO), when producers behave à la Cournot, a higher proportion of energy is produced by wind. In effect, withholding of generation capacity by producers prompts more transmission investment since the TSO aims to increase welfare by subsidizing wind and the MI creates more flow to maximize profit.

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DO - 10.1109/TPWRS.2014.2367107

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