<p>Electricity transmission network investments are playing a key role in the integration process of power systems in the European Union. Given the magnitude of investment costs, their irreversibility, and their impact in the overall development of a region, accounting for the role of uncertainties as well as the involvement of multiple parties in the decision process allows for improved and more robust investment decisions. Even though the creation of this internal energy market requires attention to flexibility and strategic decision-making, existing literature and practitioners have not given proper attention to these topics. Using portfolios of real options, we present two stochastic mixed integer linear programming models for transmission network expansion planning. We study the importance of explicitly addressing uncertainties, the option to postpone decisions and other sources of flexibility in the design of transmission networks. In a case study based on the Azores archipelago we show how renewables penetration can increase by introducing contingency planning into the decision process considering generation capacity uncertainty. We also present a two-party Nash-Coase bargaining transmission capacity investment model. We illustrate optimal fair share cost allocation policies with a case study based on the Iberian market. Lastly, we develop a new model that considers both interconnection expansion planning under uncertainty and cross-border cost allocation based on portfolios of real options and Nash-Coase bargaining. The model is illustrated using Iberian transmission and market data.</p
