Merchant transmission

Merchant transmission, which may be built by incumbent utilities or new entrants to a power market, will be built to allow lower cost generation access to customers in areas where the competing generation is higher cost. Without new transmission projects, the price discontinuity between areas results in congestion as customers in higher priced regions attempt to buy supply from lower cost regions. Thus, the value of merchant transmission can be forecasted as the difference in these locational marginal prices (LMPs). Before deciding to invest in merchant transmission, market participants need to perform economic analyses to determine which of the following options best meets their needs: participate in a merchant transmission project; participate in the development of new lower cost generation closer to the local area; or do neither and continue to pay higher prices than available elsewhere during certain times.