Evaluating the Net Benefits of Investing in New Wind and Transmission Capacity on a Network

The SuperOPF provides a framework linking the short-run criterion of "operating reliability" and the long-run criterion of "system adequacy" on an AC network. This is accomplished by allowing for load shedding as an expensive option to meet contingencies. The high cost of "energy-not-served" implies that some equipment can be very valuable in contingencies if it reduces the amount of energy-not-served. Calculating the nodal prices correctly for different states of the system provides the basis for determining the economic value of improved reliability and investments in additional network capacity. The objective of this paper is to extend the cooptimization framework to determine the net economic benefit of adding an intermittent source of generation, such as wind capacity, and new transmission capacity to a network. Using the cooptimization framework, this situation can be represented by defining new contingencies that correspond to unpredicted changes in the level of generation from the wind capacity. Using the SuperOPF, the amount of additional reserve capacity that is required to maintain reliability with higher levels of wind penetration is determined endogenously. An empirical example illustrates how the SuperOPF can be used to determine the expected annual cost of meeting load after wind capacity is installed at a remote location. These annual costs are reduced when additional transmission capacity is installed to reduce congestion in transferring wind generation to a load center. Hence, the economic issue is to determine whether the savings in production costs are high enough to cover the annualized cost of investing in the new transmission capacity.