Reference Transmission Network: a Game Theory Approach

The transmission network plays a key role in an oligopolistic electricity market. In fact, the capacity of a transmission network determines the degree to which the generators in different locations compete with others and could also greatly influence the strategic behaviors of market participants. In such an oligopolistic framework, different agents may have distinct and sometimes opposite interests in urging or hindering certain transmission expansions. Therefore, the regulatory authority, starting from the existing grid, faces the challenge of defining an optimal network upgrade to be used as benchmark for approval or rejection of a given transmission expansion. The aim of this paper is to define the concept of reference transmission network (RTN) from an economic point of view and to provide a tool for the RTN assessment in a deregulated framework where strategic behaviors are likely to appear. A general game-theoretic model for the RTN evaluation is presented, and the solution procedure is discussed. The strategic behavior of market agents in the spot market is modeled according to a Supply Function Equilibrium approach. The impact of transmission capacity expansion on market participants' strategic behavior is studied on a three-bus test network. The RTN is computed and compared with the optimal expansion found when perfect competition among power producers is assumed.