The economic value of transmission lines with increased penetrations of stochastic generation

When establishing the current deregulated markets for electric energy, many regulators believed that the size of the congestion rents (i.e. the differences in nodal prices times the quantity of energy transferred) would provide the correct incentives for investing in new transmission lines. This rationale for merchant transmission is potentially feasible for transmission lines that are needed mainly for transferring energy from inexpensive sources to expensive sinks. However, maintaining Operating Reliability is also an important function of transmission. In an AC meshed network, a single transmission line may play an essential role for maintaining the reliability of supply as well as for transferring power. Since reliability is essentially a public good, transmission owners will tend to under-invest in the transmission lines needed for reliability purposes. The objective of this paper is to present an analytical framework for determining the economic value of individual transmission lines, and in particular, to determine how these economic values change when an inherently intermittent source of generation, such as wind capacity, is added to a network.