Considering decentralized storage and renewable investments in transmission expansion planning: a bi-level approach

In modern deregulated electricity markets, centralized TSOs decide network expansion, by aiming to maximize social welfare, while decentralized generation companies decide their generation investment by maximizing their own profit. This market structure creates contradictory incentives between market players and can lead to different outputs depending on who is the leader in the market, anticipating the decisions made by the others. Additionally, the increasing penetration of renewable energy, storage and distributed generation, might represent a rupture between short and long-term economic signals. Traditional cost minimization (social welfare maximization) models do not account for this type of interactions. 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 evaluate how planning the power system under a bi-level framework differs from a traditional cost minimization framework taking into account uncertainty in production of renewable resources.