A leader-followers model of power transmission capacity expansion in a market driven environment

We introduce a model for analyzing the upgrade of the national transmission grid that explicitly accounts for responses given by the power producers in terms of generation unit expansion. The problem is modeled as a bilevel program with a mixed integer structure in both upper and lower level. The upper level is defined by the transmission company problem which has to decide on how to upgrade the network. The lower level models the reactions of both power producers, who take a decision on new facilities and power output, and Market Operator, which strikes a new balance between demand and supply, providing new Locational Marginal Prices. We illustrate our methodology by means of an example based on the Garver’s 6-bus Network.