Investigating the social efficiency of merchant transmission planning through a non-cooperative game-theoretic framework

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Title: Investigating the social efficiency of merchant transmission planning through a non-cooperative game-theoretic framework
Authors: De Paola, A
Papadaskalopoulos, D
Angeli, D
Strbac, G
Item Type: Journal Article
Abstract: Merchant transmission planning is considered as a further step towards the full liberalization of the electricity industry. However, previous modeling approaches do not comprehensively explore its social efficiency as they cannot effectively deal with a large number of merchant companies. This paper addresses this fundamental challenge by adopting a novel non-cooperative game-theoretic approach. Specifically, the number of merchant companies is assumed sufficiently large to be approximated as a continuum. This allows the derivation of mathematical conditions for the existence of a Nash Equilibrium solution of the merchant planning game. By analytically and numerically comparing this solution against the one obtained through the traditional centralized planning approach, the paper demonstrates that merchant planning can maximize social welfare only when the following conditions are satisfied: a) fixed investment costs are neglected and b) the network is radial and does not include any loops. Given that these conditions do not generally hold in reality, these findings suggest that even a fully competitive merchant transmission planning framework, involving the participation of a very large number of competing merchant companies, is not generally capable of maximizing social welfare.
Issue Date: 1-Sep-2018
Date of Acceptance: 1-Mar-2018
DOI: 10.1109/TPWRS.2018.2817360
ISSN: 0885-8950
Publisher: IEEE
Start Page: 4831
End Page: 4841
Journal / Book Title: IEEE Transactions on Power Systems
Volume: 33
Issue: 5
Copyright Statement: © 2018 IEEE. Personal use of this material is permitted. Permission from IEEE must be obtained for all other uses, in any current or future media, including reprinting/republishing this material for advertising or promotional purposes, creating new collective works, for resale or redistribution to servers or lists, or reuse of any copyrighted component of this work in other works.
Sponsor/Funder: The Leverhulme Trust
Funder's Grant Number: ECF-2016-394
Keywords: Science & Technology
Engineering, Electrical & Electronic
Game theory
merchant transmission investors
Nash equilibrium
transmission planning
0906 Electrical And Electronic Engineering
Publication Status: Published
Online Publication Date: 2018-03-22
Appears in Collections:Faculty of Engineering
Electrical and Electronic Engineering
Centre for Environmental Policy
Faculty of Natural Sciences

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