Final report in English.
Over the past two decades electricity markets in Europe have undergone major changes that have impacted transmission expansion planning. Firstly, electricity markets have been restructured and deregulated, so transmission and generation expansion decisions are no longer made by the same entity. Secondly, volumes of interregional and international electricity trade have increased as Europe aims for a single market. Thirdly, large amounts of intermittent renewable electricity generation are being connected to the grid, often at locations far away from where demand is. This added complexity and uncertainty requires the development of new theories and models for transmission expansion planning.
The purpose of the project is to propose a methodology to assess optimal generation-transmission planning in a perfectly competitive electricity market, and apply it to Swedish electricity market.
Transmission in modern markets cannot be optimised in isolation, as transmission is both a compliment and a substitute for generation. This coordination problem will be especially addressed in his project.
The proposed methodology consists of a two-level optimisation problem. At the lowest level, the strategic investment decisions of generators are modelled as a simultaneous-move game. The solution to this game consists of multiple Nash equilibria. Nash equilibrium is a term used in game theory to describe an equilibrium where each player's strategy is optimal given the strategies of all other players. The upper level models the behaviour of the transmission planner and the whole model is a leader-follower game. Transmission planners are the leaders, taking the first step and committing to certain upgrade and expansion options, and independent, competing generators react to these options.
This means that transmission planners are assumed to be proactive, i.e. anticipate the response by the generators, and can induce generation investment so as to maximize social welfare.
The solution to the simultaneous-move game is the input to the leader-follower game. This means that the generator makes its decision to commit to a certain option based on the outcome of the simultaneous-move game. The fact that there are multiple equilibria is tackled by finding the worst Nash equilibrium - the equilibrium of the electricity market that for the purpose of transmission investment has the highest cost to society. The transmission planner then selects the transmission expansion option that results in the lowest worst Nash equilibrium, i.e. the lowest worst social cost.
To illustrate the proposed methodology, the project is studying the optimal expansion of a three-node network with four competing generators. The methodology will be applied to the Swedish electricity market.
Market power issues will not be considered.