Impacts of network expansion on generation capacity expansion

A pessimistic three-level equilibrium model for a market-based expansion of both transmission and generation is proposed. The lower (third) level models the market outcome; the intermediate (second) level models the equilibrium in generation capacity expansion by taking into account the outcomes of the market equilibrium at the third level. The upper (first) level models the expansion of the transmission network. The second and third levels are modeled as an Equilibrium Problem with Equilibrium Constraints (EPEC) parameterized in terms of the optimal decisions of the transmission planner. This three-level hierarchy is motivated by the fact that transmission planners should consider expansions in generation that may take place, as well as the clearing of the market related to generation expansion, in order to make their decisions. At the first level, the transmission planner can take different positions with different impacts in the system because a manifold of equilibria is possible with different costs for the system. Unlike previously reported hierarchical approaches, which are implicitly formulated as optimistic, we solve the pessimistic solution of the problem (the transmission planner takes a pessimistic attitude towards the outcome of the generation expansion equilibrium). Results for a test power system are presented in order to show the efficiency and interpretations of the proposed model.