MW-mile recovery method in merchant transmission investment by generation companies

Abstract Transmission expansion projects are seriously affected by the budget limitations. Stimulating private investment has been among the efficient ways to overcome this limitation. A structure is proposed to involve generation companies (GenCos) as private investors to invest in transmission expansion plans. The GenCo identifies the most appropriate plan among those announced by the Transmission Service Provider (TSP) through conducting a cost–benefit analysis. The cost–benefit function consists of the investment cost, the incremental expected profit from energy production, and the expected revenue from investment recovery. A transmission pricing mechanism is proposed to recoup the investment based on the MW-mile method. The delay in the construction time of generation and transmission projects is modeled by a scenario tree in the proposed cost–benefit analysis. The presented method is examined on the IEEE 24-bus system.