Transmission expansion investment: Cooperative or non-cooperative game?

Abstract

The debate on which is the best incentive for transmission expansion is still active. Discussions center on economic mechanisms based on game theory to expand transmission. There is a mix of experiences and they vary in function of the level of interaction of market agents. Identifying the agents' strategies will allow a better understanding of the market's dynamics. This article assesses regulatory incentives based on the market for transmission expansion. Game theory fundamentals are developed, namely, the cooperative and non-cooperative games. Four base cases of a bi-nodal model were implemented. It is claimed that given the individual interests (egotistical) and grid characteristics (non-stored energy, circulating flows and variables), the transmission expansion fits better to a non-cooperative model. An alternative analysis is the design of Bayesian mechanisms.