Market-based valuation of transmission network expansion. A heuristic application in GB
Name
esd-wp-2011-14.pdf
Size
2.43 MB
Format
Adobe PDF
Checksum (MD5)
e013829f25432de80ef492d895d9c3bd
Author(s)
Chamorro, Jose M.
Abadie, Luis M.
de Neufville, Richard
Ilic, Marija
Date Issued
December 2011
Publisher
Massachusetts Institute of Technology. Engineering Systems Division
Series/Report no.
ESD Working Papers;ESD-WP-2011-14
Abstract
Transmission investments are currently needed to meet an increasing electricity demand, to address security of supply concerns, and to reach carbon emissions targets. A key issue when assessing the benefits from an expanded grid concerns the valuation of the uncertain cash flows that result from the expansion. We develop a valuation model which combines optimization techniques, Monte Carlo simulation over the expansion project lifetime, and market data from futures contracts on commodities. The model allows for random failures in generation and transmission infrastructure. Uncertainty stems also from nodal loads, fuel prices, allowance prices, wind generation, and hydro generation. Thus the model accounts for the stochastic dynamics on both the demand side and the supply side. To demonstrate the model by example, we consider a simplified network with two nodes. It is intended to broadly resemble the power generation sectors in England/Wales and Scotland. We then focus on the proposed Western HVDC subsea link. We simulate the whole distribution of effects on system costs, carbon emissions, and unserved load.
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