Merchant Transmission Capacity Investment: A Mathematical Program with Equilibrium Constraint Formulation
Abstract This article presents a new methodology for decentralized capacity expansion planning for the transmission sector of a power system in a deregulated electricity market. The proposed model forms a bi level optimization problem in which an upper level problem represents a transmission company making its own strategic decisions on investment to maximize its profit while in the lower level, the market clearing problem of the independent system operator or market operator is formulated. A transmission company obtains its revenue based on flowgate marginal prices. The lower problem is replaced by its Karush Kuhn Tucker conditions, resulting in a mathematical program with an equilibrium constraint. Some linearization techniques have been employed to reach mixed integer linear programming that can effectively be solved, and existing solvers guarantee to get to the global optimal solutions. The presented framework is applied to a simple 3 node power system and also to the IEEE 24 bus reliability test system. Results from these illustrative examples are reported and thoroughly discussed. These results signify the effectiveness of the proposed scheme to invest in the transmission part of a power system.