Sustainable Transmission Investment

In Chaps. 4 – 6 , we treated operational and investment problems from the perspective of power companies. In particular, these firms’ decisions concern generation-capacity expansion and offerings to the electricity market given a particular transmission network. Consequently, the impact of various environmental policies could be examined while taking into account the physical constraints of the network, which are often paramount to the exertion of market power. However, since some environmental policies, e.g., renewable portfolio standards (RPS)Renewable portfolio standard, aim to incentivize investment in renewable energy (RE) technologiesRenewable energy technologies, either expansions to or reinforcements of the transmission grid are necessary. Yet, as discussed in Chap. 1 , the restructured nature of the power sector in most OECDOrganisation for economic co-operation and development countries means that transmission planning is typically conducted by a welfare-maximizing transmission system operator (TSO)Transmission system operator, whereas generation expansion and operations are carried out by profit-maximizing power companies. Thus, a credible assessment of policy proposals requires a suitable framework that models this distinction between decision makers’ motives directly. Toward that end, we propose a bi-level modelingBi-level modeltransmission investment approach in this chapter in which a TSO at the upper level makes transmission-expansion decisions while constrained by the generators’ decisions at the lower level. After a discussion of the role of the TSOTransmission system operator and a survey of the literature, we develop two types of models. Initially, we formulate a benchmark central-planning modelCentral planningtransmission that abstracts from the realities of restructured power sectors to provide first-best policy insights stemming from optimal generation and transmission investment in response to the cost of damage from CO$$_2$$ emissions. Next, a bi-level modelingBi-level modeltransmission investment approach is taken in which the TSOTransmission system operator at the upper level must anticipate the response of industry’s generation-capacity investment and operations. The effectiveness of a carbon taxCO $$_2$$ emissionstax in inducing socially optimal behavior by industry is investigated. We conclude the chapter with a summary of its content and extensions to the models therein. GAMSGeneral algebraic modeling system codes for implementing the approaches are provided at the end of this chapter.