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

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

Investment coordination in network industries: the case of electricity grid and electricity generation

Liberalization of network industries frequently separates the network from the other parts of the industry. This is important in particular for the electricity industry where private firms invest into generation facilities, while network investments usually are controlled by regulators. We discuss two regulatory regimes. First, the regulator can only decide on the network extension. Second, she can additionally use a capacity market with payments contingent on private generation investment. For the first case, we find that even absent asymmetric information, a lack of regulatory commitment can cause inefficiently high or inefficiently low investments. For the second case, we develop a standard handicap auction which implements the first best under asymmetric information if there are no shadow costs of public funds. With shadow costs, no simple mechanism can implement the second best outcome

Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing Under Carbon-Tax-Induced Variable Renewable Energy Supply

Common intuition holds that retail real-time pricing (RTP) of electricity demand should become more beneficial in markets with high variable renewable energy (VRE) supply mainly due to increased price volatility. Using German market data, we test this intuition by simulating long-run electricity market equilibria with carbon-tax-induced VRE investment and real-time price responsive and nonresponsive consumption behavior. We find that the potential welfare gains from RTP are only partially explained by price volatility and are rather driven by opposing wholesale price effects caused by the technology portfolio changes from carbon taxation. Consequently, annual benefits from RTP actually change nonmonotonously with the carbon tax level, implying that increasing RTP at relatively high VRE shares can be both less and much more beneficial than without VRE supply. Nonetheless, as zero marginal cost supply becomes abundant with VRE entry, allocative efficiency increasingly depends on exposing more and more consumers to RTP

Towards a complete real-time electricity market design

Auctions, Transmission markets, Market design, Power system economics, D23, L11, L94, P11,