Optimal transmission expansion under different market structures

The debate is still on regarding the rationale for transmission expansion in deregulated power markets. Transmission planning with social welfare as the objective would lead to a different optimal expansion plan compared to the planning deemed optimal by individual merchants acting on market forces with profits as their objective. This issue remains to be resolved amid varying rationales and conflicting interests. Fundamental formulations and analyses for long-term network expansion are presented under the paradigms of (i) system-wide social cost minimisation under central planning, and (ii) profit maximising objectives of merchant entrants covering a range of market structures. Distinct planning outcomes under centralised (regulated monopoly) and decentralised (merchant transmission) network managements, and the relation between these optimal solutions have been quantified analytically. These fundamental formulations would be useful for detailed policy studies, and in the formulation of practical regulatory frameworks in the context of transmission sector market liberalisation. Simple and clear examples are presented to illustrate the theoretical results.