Optimal Transmission Switchingfor Reducing Market Power Cost

Abstract: The conventional transmission planning tends to focus exclusively on efficiency benefit, allowing cheaper remote generation to have priority dispatch over expensivelocal generation (least cost approach). Because of this nowadays deregulatedmarkets face the problem that their systems affect the competitiveness of players,giving room for players to exercise market power.The purpose of this study is to develop a mathematical model that quantitiesthe generation cost and reduces market power, by minimizing the social cost andrestraining producers from withholding generation capacity. To do this, deterministicoptimal transmission switching is proposed, together with a Worst-NashEquilibrium (WNE) optimization, to quantify the social cost.This study considers the transmission switch formulation based on the DCOptimal Power Flow (DCOPF) presented by Schmuel S. Oren as a Mixed-Integerlinear Program (MIP). This formulation employs binary variables to representthe state of the transmission line. The effects of transmission switching withcontingency analysis are also considered in the DCOPF formulation.To include market power cost reduction in our problem, the social cost ofthe system is modeled considering WNE, which maximizes the social cost usinglinearization. The formulation includes strategic generators that might chooseto withhold some of their output and non-strategic generators. This under thecondition that the profit of a portfolio with a strategic generator under NashEquilibrium is always greater than the profit of a portfolio where the offers areconstant.A 14-node example system is studied where the effciency benefits and competitionbenefits of transmission capacity by optimal transmission switching areconsidered. The results demonstrate that the utilization of the proposed methodincrease economic benefit and improves competitiveness in the electricity market.