Contracts for recovery of investments in transmission assets

The need for investment in the improvement and expansion of the electric transmission grid has not been properly met in the new competitive environment. Investment in transmission assets poses demanding challenges: multiplicity of players, market imperfections, among others. The integration of financial instruments poses also an additional level of complication, because investors wish to ensure steady long-term returns and to withstand short-term market volatility. The integration of financial instruments poses also an additional level of complication, because investors wish to ensure steady long-term returns and to withstand short-term market volatility. This study presents a specific contract model based on financial transmission rights (FTR) for valuation of transmission assets, where the stochastic properties of all the variables related to the market structure in which the investment happens are taken into account. The model is applied to the IEEE 24-bus reliability test system showing the approach capabilities as a decision-aid tool for transmission investors.