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Merchant power flow controllers

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  • Sahraei-Ardakani, Mostafa

Abstract

The transmission system in the U.S. is under stress, leading to high congestion costs. To address this issue, more efficient utilization of the existing network is a paramount alternative to building new transmission lines. Significant transfer capability enhancement can be readily achieved via a number of mature technologies that enable power flow control. Despite the promise of power flow controllers (PFC), their deployment has been very limited, due to a number of reasons, including heavy economic regulation. This has many drawbacks, including lengthy planning and approval time, lack of incentives for efficient planning and operation, and transfer of the investment risks to the ratepayers. This paper argues that PFCs pose characteristics that fit well within the framework of merchant transmission without its drawbacks, such as lumpy investments. This paper, thus, proposes to assign financial transmission rights (FTR) to merchant PFC owners based on the additional transfer capability that they offer to the system. The owners are expected to recover their investment costs through the revenues they collect from such FTRs. Unlike regulated rate of return payment, the proposed model provides the right incentive for efficient planning and operation of PFCs. The paper also proves FTR revenue adequacy in presence of the PFCs by developing a simultaneous feasibility test model. The performance of the method as well as its revenue adequacy are demonstrated, first, on a two-bus system, and then, on a three-bus system in presence of loop flows. The paper concludes that opening the electricity markets to merchant PFC projects would reveal profitable investment opportunities to improve the efficiency of the system.

Suggested Citation

  • Sahraei-Ardakani, Mostafa, 2018. "Merchant power flow controllers," Energy Economics, Elsevier, vol. 74(C), pages 878-885.
    • Handle: RePEc:eee:eneeco:v:74:y:2018:i:c:p:878-885
    DOI: 10.1016/j.eneco.2018.08.002
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    References listed on IDEAS

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    1. Paul Joskow & Jean Tirole, 2005. "Merchant Transmission Investment," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 233-264, June.
    2. Bushnell, James B & Stoft, Steven E, 1996. "Electric Grid Investment under a Contract Network Regime," Journal of Regulatory Economics, Springer, vol. 10(1), pages 61-79, July.
    3. Snarr, Steven W., 2009. "The Commerce Clause and Transmission Infrastructure Development: An Answer to Jurisdictional Issues Clouded by Protectionism," The Electricity Journal, Elsevier, vol. 22(5), pages 8-18, June.
    4. Bushnell, James B. & Stoft, Steven E., 1997. "Improving private incentives for electric grid investment," Resource and Energy Economics, Elsevier, vol. 19(1-2), pages 85-108, March.
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    6. Kory Hedman & Shmuel Oren & Richard O’Neill, 2011. "Optimal transmission switching: economic efficiency and market implications," Journal of Regulatory Economics, Springer, vol. 40(2), pages 111-140, October.
    7. Bushnell, James & Stoft, Steven, 1996. "Grid investment: can a market do the job?," The Electricity Journal, Elsevier, vol. 9(1), pages 74-79.
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    Cited by:

    1. Mirzapour, Omid & Rui, Xinyang & Sahraei-Ardakani, Mostafa, 2023. "Transmission impedance control impacts on carbon emissions and renewable energy curtailment," Energy, Elsevier, vol. 278(C).

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    More about this item

    Keywords

    Deregulation; Electricity markets; Financial transmission rights; Merchant transmission; Power flow controller; Power transmission;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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