Market-based transmission planning model in PJM electricity market

In this paper, we describe an economic model of market-based transmission planning, employed at PJM Interconnection, the largest regional transmission organization (RTO) in the U.S. We call this model the “Market Efficiency Analysis” model. The salient feature of this model is that it is based on the forecasted congestion in the PJM system for future years, based on the best possible system topology and generation scenario, while meeting the current reliability criteria with minimum reliable reserve margin. We apply the Security-Constrained Unit Commitment and Economic Dispatch (SCUC/ED) algorithm which is at the heart of determining Locational Marginal Price (LMP) and valuable congestion information. Required generations for future years are added into the system based on the current pattern of market-based generation expansion. We compare the benefits and costs of proposed transmission upgrade projects using reasonable estimate of discount rates and the Net Present Value (NPV) method to determine the economic viability of the transmission upgrades. We also do sensitivity analyses to determine the various key drivers for influencing the economic outcome. We illustrate the effectiveness and strength of this proposed market-based model with its application to a major transmission upgrade in the PJM system. We found that not only the proposed upgrade reduces potential congestion significantly but also is economically attractive. The proposed model can be applied in transmission planning analysis with relevant electricity markets.