Systems dynamics modeling for understanding transmission investment incentives

Over the past several decades the electric power industry has undergone a broad restructuring process of attempting to introduce competition and improve economic efficiency. This restructuring has liberalized the traditional vertically integrated industry by separating many traditional engineering functions from central decision-making in planning and operation. This thesis focuses on transmission investment incentives under these restructured environments, which have been a particular concern. Specifically, this work contributes the following: (1) Developed a dynamic model with information feedback. Considering the characteristics of the restructured industry, the system dynamics approach is used as a tool to model the Western Electricity Coordinating Council transmission planning process and analyze the effects of different incentives on its transmission investments. This is the first time that the system dynamics is used for transmission planning analysis. (2) Introduced methods to model transmission capacity expansion with soft constraints. In order to coordinate the contradiction between transmission expansion and investment, soft limits are utilized in the optimal transmission expansion formulation. This technique provides a systematic method to avoid alternating between over and under investment. (3) Developed a tool for studying the effects of different incentives on transmission investment. System dynamics models are constructed and simulated under different market structures. The analyses and comparisons based on the simulations help us better understand the effects of different incentives on transmission investment. (4) Proposed an improved process for transmission planning. With the developed models, the system information feedback control and complex inter-relationships between different market components can be taken more fully into consideration. The transmission planning process better reflects real system conditions. This can reduce uncertainties and allows a risk-based model for decision-making. (5) Suggests a framework for improving market design and regulations. Considering the complication of the restructured power industry, system dynamics modeling does not need to be limited to transmission planning and resource planning. It can also be used to test the effects of different policies or structures on the markets.