Modeling competition in transmission expansion

A transmission network plays a key role in allowing access to the most efficient generators to all consumers. In most cases, the new transmission projects are defined by a system operator, which focuses on improving the bulk system's reliability and reducing short-term operating problems. Because electricity market participants are prevented from investing in transmission facilities that may benefit them, transmission expansion may not have been sufficient to stimulate competition within the market. In this paper, we show formally through a mathematical formulation based on the Lagrangian relaxation technique that the investment on transmission capacity can be a profitable activity, and therefore, the introduction of competition in the transmission expansion could be possible. Such a competitive expansion of transmission capacity would allow the participants to improve the efficiency of the electricity market. Index Terms--Optimization methods, power transmission economics and planning, pricing.