Application of bi-level programming for profit maximization by transmission investors

This paper presents the application of bi-level programming to determine the profit maximization for transmission investor in deregulated power markets. We consider a deregulated market comprising merchant transmission investors responsible for transmission expansion and a central market operator responsible for market clearing. The problem is solved using two levels of optimization: Upper level problem, where the objective of the transmission merchant investor is to maximize profits and a Lower level problem, where the objective of the market operator is to maximize the social welfare of the generators and the customers. Transmission investment decisions made in the upper level adjust the transmission constraints in the lower level. The optimal solutions obtained in the lower level are used by transmission investors to calculate the transmission congestion price and profit. The bi-level model is applied on test systems and the results are consistent with the analytical method available in literature.