New Zealand Institute for the study of competition and regulation inc.

Abstract

We present an incentive scheme to stimulate investment in the improvement/ expansion of the transmission network in the competitive market environment. The formulation of these incentives is based on a decentralized transmission asset investment model and is derived from the value added to the social welfare by an asset investment. In the formulation, we view each potential investor as a player in a cooperative game and we use the unique solution provided by the Shapley value to allocate the payment to each successful investor commensurated with the increase in social welfare the investment brings to the system. The formulation brings valuable insights on the transmission investment topic. We apply the proposed methodology to the Garver 6-bus system to illustrate the capabilites and flexibility of the scheme and to gain insights into the development of network improvements through the formulation proposed.