Modeling the diversification benefit of transmission investments : in the presence of uncorrelated generation sources

Abstract: It is well known that transmission investment yields two major benets: (a) it allows cheaper remote generation to substitute for more expensive local generation, (the efficiency benefit) and (b) by increasing the diversication of uncorrelated generation sources, allows a reduction in the volume of balancing services required (the diversification benefit). Conventional transmission planning processes tend to focus exclusively on the efficiency benefit. It is well known that increasing wind penetration increases the need for balancing services. Even where the market is able to provide the signals to generators as to when and how much to produce, increasing wind penetration increases the need for higher- exibility plant (such as OCGT or very fast start hydro plant) which typically has a higher long-run cost. The purpose of this study is to develop a mathematical model for quantifying the diversification benefit for transmission investment. To do this two-step economic dispatch of the day-ahead energy market and the real-time balancing market are mathematically formulated in a single optimization problem which calculates the results of day-ahead market dispatch and real-time market dispatch in one optimization problem. The new formulation is a linear programming problem which calculates the dispatch cost and the economic deviation from the dispatch cost. Firstly, this single optimization problem is used for quantifying the diversification benefit of the additional transmission capacity. Then, a stochastic optimization model for modeling the diversification benefit of additional transmission capacity in the transmission planning process is formulated. Uncertainty of system parameters are modeled using scenarios. ARIMA models anda scenario reduction technique based on Kantorovich distance are used for generating the scenarios. To explain the diversification benefit, two example systems are studied. Firstly, to evaluate the impact of additional transmission capacity on the dispatch cost of the day-ahead energy market and the real-time balancing market, IEEE thirty-node example system is studied. The diversification benefit is calculated and the conclusions are extracted. Then, a transmission planning approach, which considers the diversification benefit along with the efficiency benefi, is proposed. The proposed and conventional transmission planning approaches are applied to modied IEEE 24-node example system. Conventional transmission planning approach (which models only efficiency benefit in its formulation) is used as a benchmark in this study. The numerical results show that the proposed approach can effectively quantify the diversification benefit of additional transmission capacity.