Considering strategic market feedback in transmission expansion planning: a bi-level approach

The growing penetration of renewable technologies, as well as the increasing needs of storage technologies, has introduced new challenges into the design of electricity markets. Therefore, centralized TSOs decide network expansion, by aiming to maximize social welfare, while decentralized generation companies decide their investments by maximizing their own profit. In this sense, generation companies have to face the intermittency of renewable energy, as well as to manage the new dynamics of different types of storage according to short and long-term economic signals. This environment may create new opportunities for strategic market behavior of these competitive generation companies. However, traditional (and widely utilized) cost minimization planning models do not account for this type of interaction. As an alternative, we present a bi-level proactive transmission expansion framework in which a centralized TSO represents the upper level while the decentralized generation companies that trade in the market represent the lower level. We study the policy implications of planning the system under a traditional cost minimization approach instead of a proactive framework (in which distinctive technology ownership and degrees of competition can be considered), that accounts for potential strategic behavior of market agents.