A mathematical structure for the assessment of transmission system augmentation in the Australian National Electricity Market

It is possible to distinguish three types of benefits from a transmission network augmentation: the benefits of more efficient dispatch (the "efficiency benefit"), the benefits from enhanced system reliability (the "reliability benefit") and the benefits of a reduction in market power (the "competition benefit"). In the Australian National Electricity Market, NEM, the "competition benefit" of additional transmission capacity has not, in practice, been explicitly assessed. In the future, however, it is possible that generator market power in some markets will increase. Consequently, it is timely and important to develop a workable mechanism to model and calculate the competition benefit of additional transmission capacity within the current NEM rules. In this paper, we propose a new mathematical structure for market-based augmentation of the transmission system, which can capture both the efficiency benefit and competition benefit of the transmission capacity. The Nash solution concept is employed to model the price-quantity game among Generating Companies, GenCos. The multiple Nash equilibria of the game are located by reformulating the Nash solution concept as an optimisation problem. The "worst" Nash equilibrium is used to assess the competition benefit of the transmission augmentation. The worst Nash equilibrium is the equilibrium which maximises the social cost, i.e. the sum of total generation cost and the total value of unserved energy. Thorough analysis of the modified Garver's example system is presented to clearly highlight the implications of the derived mathematical structure from different perspectives.