A negotiation-based incentive mechanism for efficient Transmission Expansion Planning considering generation investment equilibrium in deregulated environment

Hui Guo, Yunpeng Xiao, Pierre Pinson, Xiuli Wang, Likai Zhang and Xifan Wang

Applied Energy, 2025, vol. 386, issue C, No S0306261925002259

Abstract: The current Transmission Expansion Planning (TEP) incentive mechanisms are inadequate. They either fail to ensure revenue sufficiency or achieve socially optimal investment. The non-negligible coordination between TEP and Generation Expansion Planning (GEP) in the deregulated environment introduces more computational challenges to the TEP problem. This paper proposes a novel negotiation mechanism that enables Generation Companies (GenCos) and Load-Serving-Entities (LSEs) to negotiate TEP strategies with Transmission Companies (TransCo) directly. The negotiation process is modeled based on the Nash Bargaining theory. We explore the intertwined relationship between TEP and GEP through a bi-level, single-leader-multi-follower model. We transform the upper-level problem for better tractability and introduce a modified Proximal-Message-Passing (PMP) decentralized algorithm to achieve generation investment equilibrium at the lower level. We then utilize an iterative solving approach to coordinate the two levels. The feasibility and efficiency of this mechanism and methodologies are demonstrated using an IEEE 24-bus test system. The numerical results verify that our mechanism ensures revenue sufficiency and achieves socially optimal TEP strategies comparable to state-of-the-art mechanisms. Additionally, our mechanism maintains transmission network user privacy, aligns the benefits of TransCo with those of transmission network users, and ensures a fair allocation of TEP costs and risks. The proactive participation of market players enabled by the negotiation mechanism can promote the transformation towards new market systems by mitigating the stranded cost issue. Moreover, our decentralized algorithm effectively addresses the non-cooperative nature of GEP, and the computational efficiency analysis justifies the model’s scalability and practicality.

Keywords: Transmission Expansion Planning; Incentive mechanism design; Nash Bargaining theory; Generation investment equilibrium; Decentralized algorithm (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1016/j.apenergy.2025.125495

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