Efficiency of proactive planning based on financial transmission rights contracts

Abstract

In deregulated markets, generation companies freely decide about their investments, while the transmission planner decides only about network enhancements. The coordination between Generation Expansion Planning (GEP) and Transmission Expansion Planning (TEP) that existed in the traditional monopoly structure, no longer exists in the restructured power systems. Generation and transmission are mutually dependent activities, thus generation and transmission investment decisions must be coordinated to ensure an optimal development of the power system. Indeed, a lack of coordination can lead to inefficient transmission investments and lower profits for generation companies. Existing transmission planning approaches do not fully address this coordination issue. Hence, the paper focuses its attention on the development of the transmission system and on its coordination with the installation of new generation plants: a new transmission planning approach is proposed based on Financial Transmission Rights (FTRs) contracts to be signed between the network planner and generation developers in order to financially commit both parties simultaneously to carry out their projects as planned. The paper also presents a methodology to evaluate the efficiency of the proposed approach compared to existing planning approaches, from both the perspective of the network planner and the generation developers.

In deregulated markets, generation companies freely decide about their investments, while the transmission planner decides only about network enhancements. The coordination between Generation Expansion Planning (GEP) and Transmission Expansion Planning (TEP) that existed in the traditional monopoly structure, no longer exists in the restructured power systems. Generation and transmission are mutually dependent activities, thus generation and transmission investment decisions must be coordinated to ensure an optimal development of the power system. Indeed, a lack of coordination can lead to inefficient transmission investments and lower profits for generation companies. Existing transmission planning approaches do not fully address this coordination issue. Hence, the paper focuses its attention on the development of the transmission system and on its coordination with the installation of new generation plants: a new transmission planning approach is proposed based on Financial Transmission Rights (FTRs) contracts to be signed between the network planner and generation developers in order to financially commit both parties simultaneously to carry out their projects as planned. The paper also presents a methodology to evaluate the efficiency of the proposed approach compared to existing planning approaches, from both the perspective of the network planner and the generation developers.