Capacity expansion and investment as a function of electricity market structure: Part II - Transmission

In this paper, we address the problem of transmission capacity expansion and investment in the changing electric power industry. We review a benchmark measure of optimal transmission capacity investment first; this is followed by examining investment strategies as a function of market structure. In particular, we examine the effects of ex-post and ex-ante financial transmission rights (FTR) auctions in the spot only market, and in the newly proposed stratum electricity market (SEM) structure introduced in Part I of this paper for energy. The SEM is generalized to account for transmission constraints. For each market structure we provide simulations using a simple electric power network. The results of these simulations are compared. We have attempted to show that the proposed SEM provides the long term signals necessary for transmission capacity investment planning.