An agent-based simulation model for evaluating financial transmission rights in the Colombian electricity market

Congestion of transmission and the need to allocate congested capacity is one of the problems that arise in the operation of power transmission grids. Congestion can be managed with mechanisms based on rules and also with market mechanisms such as financial transmission rights. In this paper we present a simulation model for evaluating options for managing transmission capacity in the Colombian electricity system. The model combines agent-based simulation with optimization in order to examine if financial transmission rights can improve capacity allocation in the Colombian market. The main contribution of this research is to provide a simple model that combines the physical features of the interconnected system and the economic features of the Colombian power market, allowing decision makers to better evaluate regulatory alternatives. Our results suggest that a market approach is effective in managing transmission congestion, although it increases the complexity of market rules.