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

Author

Listed:
  • 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. 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.
    2. 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.
    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 261-290, November.
    4. 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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    Citations

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    Cited by:

    1. Oak, Neeraj & Lawson, Daniel & Champneys, Alan, 2014. "Performance comparison of renewable incentive schemes using optimal control," Energy, Elsevier, vol. 64(C), pages 44-57.
    2. repec:eee:eneeco:v:64:y:2017:i:c:p:55-62 is not listed on IDEAS
    3. repec:spr:annopr:v:254:y:2017:i:1:d:10.1007_s10479-017-2453-z is not listed on IDEAS
    4. Caballero, F. & Sauma, E. & Yanine, F., 2013. "Business optimal design of a grid-connected hybrid PV (photovoltaic)-wind energy system without energy storage for an Easter Island's block," Energy, Elsevier, vol. 61(C), pages 248-261.
    5. Leiva, Javier & Palacios, Alfonso & Aguado, José A., 2016. "Smart metering trends, implications and necessities: A policy review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 227-233.
    6. Yanine, Franco F. & Sauma, Enzo E., 2013. "Review of grid-tie micro-generation systems without energy storage: Towards a new approach to sustainable hybrid energy systems linked to energy efficiency," Renewable and Sustainable Energy Reviews, Elsevier, vol. 26(C), pages 60-95.
    7. Huppmann, Daniel & Egerer, Jonas, 2015. "National-strategic investment in European power transmission capacity," European Journal of Operational Research, Elsevier, vol. 247(1), pages 191-203.
    8. Spiridonova, Olga, 2016. "Transmission capacities and competition in Western European electricity market," Energy Policy, Elsevier, vol. 96(C), pages 260-273.
    9. Yanine, Franco Fernando & Caballero, Federico I. & Sauma, Enzo E. & Córdova, Felisa M., 2014. "Building sustainable energy systems: Homeostatic control of grid-connected microgrids, as a means to reconcile power supply and energy demand response management," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 1168-1191.
    10. repec:eee:eneeco:v:65:y:2017:i:c:p:194-207 is not listed on IDEAS
    11. Yanine, Franco Fernando & Caballero, Federico I. & Sauma, Enzo E. & Córdova, Felisa M., 2014. "Homeostatic control, smart metering and efficient energy supply and consumption criteria: A means to building more sustainable hybrid micro-generation systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 38(C), pages 235-258.
    12. Wagner, Johannes, 2016. "Grid Investment and Support Schemes for Renewable Electricity Generation," EWI Working Papers 2016-8, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI), revised 10 Aug 2017.
    13. Bravo, Diego & Sauma, Enzo & Contreras, Javier & de la Torre, Sebastián & Aguado, José A. & Pozo, David, 2016. "Impact of network payment schemes on transmission expansion planning with variable renewable generation," Energy Economics, Elsevier, vol. 56(C), pages 410-421.
    14. Munoz, Francisco D. & van der Weijde, Adriaan Hendrik & Hobbs, Benjamin F. & Watson, Jean-Paul, 2017. "Does risk aversion affect transmission and generation planning? A Western North America case study," Energy Economics, Elsevier, vol. 64(C), pages 213-225.
    15. Munoz, F.D. & Hobbs, B.F. & Watson, J.-P., 2016. "New bounding and decomposition approaches for MILP investment problems: Multi-area transmission and generation planning under policy constraints," European Journal of Operational Research, Elsevier, vol. 248(3), pages 888-898.
    16. Paolo Pisciella & Marida Bertocchi & Maria Teresa Vespucci, 2016. "A leader-followers model of power transmission capacity expansion in a market driven environment," Computational Management Science, Springer, vol. 13(1), pages 87-118, January.

    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;

    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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