2.1.

Generation of candidates
The generation of a candidate or a few candidates of transmission expansions for further detailed analysis may be done heuristic, analytical, or both. Because of many practical constraints, the potential candidates for transmission expansions often boil down to only a few limited practical alternatives. Intuition and experience may guide the selection. When no clear candidates are readily available, an analytical approach may be employed. The analytical approach is to formulate the problem as an optimization problem using a simplified model of the system. The classical formulation is linear programming [10], using the DC power flow model of the power system to check the reliability constraint. The simplified approach only considers a snapshot of a future power system and assumes linear costs for the transmission capacity. The application of various other optimization methods, including nonlinear programming, integer programming, artificial intelligence methods such as expert system, neural networks, genetic algorithms, and tabu search, have been proposed [11].

2.2. Financial and other analyses

Classical capital budgeting method is used to evaluate the financial aspect of the transmission expansion investment. A key consideration is the utilitys ability to finance the costs of the investment under the regulated rate structure. Under the rate-of-return regulation, the discount rate typically used is the allowed rate-of-return on capital. As the price of electricity and the revenue to the company are independent of detailed operation of the system, the financial analysis is carried out by the utilitys finance department, without considering an engineering model of system operation. Moreover, every transmission project is intensely analyzed in terms of its environmental impacts. As the planning process has been evolving into a very public undertaking the environmental issues have risen in prominence. The environmental analyses investigate all the issues including siting, right-of-way impacts, EMF concerns and visual and esthetic effec ts.

2.3. Technical assessment

The technical impact of the transmission expansion plan is assessed using detailed engineering models of the transmission system under worst-case scenarios to ensure that the system can perform reliably. Both steady-state and dynamic responses of the future power system are analyzed, usually under the assumption of the worst heavy loading conditions. Most serious disturbances on the system, such as three-phase short circuit faults and loss of generation, are postulated. Stability analysis is conducted, using detailed models of generators, transmission network and loads. The effect of loss of any single equipment (the so-called N-1 criterion) on power flows is assessed.

2.3. Technical assessment

The technical impact of the transmission expansion plan is assessed using detailed engineering models of the transmission system under worst-case scenarios to ensure that the system can perform reliably. Both steady-state and dynamic responses of the future power system are analyzed, usually under the assumption of the worst heavy loading conditions. Most serious disturbances on the system, such as three-phase short circuit faults and loss of generation, are postulated. Stability analysis is conducted, using detailed models of generators, transmission network and loads. The effect of loss of any single equipment (the so-called N-1 criterion) on power flows is assessed.

3. Changing environment and new challenges

The unbundling of generation, transmission and distribution has resulted in multiple parties in the business. To foster competition and pre-empt market power abuse, some jurisdiction required generation divestiture to create more independent generation owners. The generation enterprises, unlike the integrated utility of the regulated world, have different and sometimes conflicting objectives. The presence of new structures and the diversity of the many new players in electricity markets have fundamentally invalidated some assumptions and relationships of the traditional transmission planning process, bringing new challenges to the transmission planning problem. These challenges require the transmission owners and investors to define new planning objectives, re-examine conventional planning principles, and develop new models and means to meet these objectives. We highlight some of the major issues below

3.1. Expansion criteria

What criteria should guide transmission expansion decision-making amid parties with diverse interests is a critical issue to be addressed because the paradigm of least-cost expansion planning is no longer viable. Should the criteria be based on benefit? Then there is always the issue of public interests (i.e. social welfare) vs. private interests. How to include reliability w hose benefit is hard to quantify in the expansion criteria?

3.2. Relationship with generation and load

Traditional transmission planning starts from a given load forecast and a generation expansion plan, both of which are responsibilities of the same company In the restructured industry, generation expansion decisions are made by individual generation companies, often not completely known to the authority responsible for transmission planning. Indeed beyond the 5- or 10-year horizon, generation scenarios are largely unknown. Compounding the matter is that generation expansion decisions may be affected by decisions on transmission expansion and vice versa. For instance, a transmission project may take 5 or 10 years, longer than two years or so for building a gas turbine or a combined cycle power plant. A generation project may be initiated after the transmission project has commenced, potentially altering the financial assumptions used to justify the transmission project. There is also the substitution effect of transmission by generation or by load via demand-side management. Such interactions make the transmission expansion planning no longer a simple sequential process

3.3. Institutional issues

There is no a clear definition or delineation of the responsibilities among various stakeholders involved in transmission expansion planning. For example, who should propose an expansion, who should review and analyze the expansion proposal, and who should take the role to approve the plan? How to reconcile conflicting interests among the stakeholders and with what mechanism to do it? In the US, Regional Transmission Organizations (RTOs) are supposed to be responsible for transmission planning. But what is the role of merchant transmission in this arrangement? Should RTOs or private investors overbuild transmission facilities in anticipation of future need?

While many difficult issues are still under debate and remain unresolved, transmission expansion planning in many countries follows, by and large, the traditional process with some modifications. The uncertainty of the market rules and the return on investment in the transition period has discouraged transmission investment. For example, annual investment on transmission in the US has dropped 50% since 1975 [3]; and the investment for the Norwegian main grid has fallen from 400 to 40 M NOK from 1991 to 1996 [12].

4. Transmission expansion in the restructured environment

Transmission expansion planning in the restructured environment can be classified into two interrelated categories, which we term as transmission investment and transmission planning. In most jurisdictions, there is an entity responsible for transmission planning, for example, ISO in the US, who will identify the best or the most appropriate expansion plans. The investors then decide who will do it to make the plan a reality. There are also instances where the investors propose a plan and submit to the transmission planning authority for approval. Transmission investment considers candidates for transmission expansion and the related financial analysis. The tight relationship between costs and revenue is fundamental to investment decisionmaking. The investment problem needs to be addressed by the entity that makes the decision whether to invest in a particular transmission undertaking. Transmission planning includes the traditional technical impact assessment on system reliability and economic and environmental impact assessment to society (all stakeholders). Transmission planning is in the realm of the transmission planning authority, e.g. ISO, the single structure in the competitive environment charged with the central planning function.

In contrast to Fig. 1 portraying a relatively simple planning process in the regulated world, Fig. 2 shows the transmission expansion planning in a restructured environment. A comparison of Figs. 1 and 2 underlines the substantial differences between transmission expansion planning in the two environments. Specifically, transmission expansion planning

in the restructured environment is much more complex. The possibilities of generation planning and demand-side management as substitutes for transmission expansion must be considered when candidates for transmission expansions are generated. The process of generating candidate transmission expansions has to recognize the uncertainty concerning generation expansion as well as load growth. It has to be flexible and robust. In this new environment, future revenue from transmission investment depends on how the system is operated. Financial analysis requires the simulation of future power system operation. The impact assessment of a new transmission expansion plan has two dimensions: one is the traditional technical assessment focusing on system reliability, engineering feasibility and environmental impact, the other one is the economic assessment of the impacts of the new system on society. Both assessments require the simulation of future power system operation and both require subjective judgment to reach compromised decisions. The incentives that drive transmission expansion planning depend on the business models adopted in different electricity markets. Transmission system business models express the relationship among the three business functions associated with the provision of transmission services: system operation, market operation, and grid ownership. A comprehensive evaluation of different transmission system business models can be found in [13]. Whether the system operation and the market operation are combined does not have a significant impact on transmission investment, so it is not a matter of concern here. However, the classifications of business models affecting transmission expansion are: (1) Combined vs. separated system operation and grid ownership functions? (2) Public vs. private ownership? (3) If privately owned, for-profit vs. non-profit? and (4) Is it owned by market entities?