The benefits of transmission expansions in the competitive electricity markets

The paper presents an innovative method for assessing simultaneously technical and economic benefits of transmission expansions. This method takes into account the new needs of the transmission planning process for competitive electricity markets, in which benefits of major transmission expansions include: (a) improved reliability, (b) increased availability of efficient supply and (c) increased competition among suppliers.The fundamental elements of the REliability and MARKet (REMARK) tool, which we implemented based on the aforementioned method, are: a yearly probabilistic simulation of power system operation; use of the non-sequential Monte Carlo method to pick the operational status of the network elements; full network representation; adoption of the simplified direct current model; quantitative assessment of the reliability benefits through the expected energy not supplied index; simulation of the strategic behaviour of suppliers based on a simplified model that correlates the price–cost mark-up to structural market variables (residual supply index and demand); a quantitative assessment of “economic” benefits through the calculation of the social welfare index.A test case application of the tool on the IEEE 24-bus reliability test system shows that the method can assess benefits of transmission expansions, in addition to the overall social perspective, for each market zone as well as separately for consumers, producers and transmission system operators. The results emphasize that the effect of transmission expansions in mitigating market power may be significant and that a simple and traditional cost-based approach may lead to a wrong evaluation of benefits given by transmission expansions.