Transmission planning and operation in the wholesale market regime

Abstract

The different incentives generation unit owners face for locating and operating their units in the wholesale market regime versus the vertically-integrated monopoly regime has wide-ranging implications for the design and operation of the transmission network in the two regimes. This logic implies different measures of grid reliability in the two regimes—engineering reliability in the vertically-integrated monopoly regime and economic reliability in the wholesale market regime. Because of the different planning criteria in the two regimes, the economically efficient choice of transmission capacity in the wholesale market regime is generally greater than that in the vertically-integrated monopoly regime. A number of arguments are presented for why the transmission planning and regulatory process for the wholesale market regime require substantially more engineering and economic modeling sophistication than is required in the vertically-integrated monopoly regime. A forward-looking framework is proposed for evaluating transmission network expansions in the wholesale market regime. This includes a general methodology for computing the distribution of realized economic benefits from an upgrade in the wholesale market regime. How the measurement of the economic benefits of transmission expansions to support the deployment of renewable resources differs between the wholesale market regime and vertically-integrated monopoly regime is also discussed.