Power transmission network investment as an anticipation problem

Power generation and transmission are complementary activities that must be coordinated to ensure an optimal use and development of the transmission network. This coordination is today more difficult in a liberalized system, because of unbundling and the freedom for investors to choose their generation technologies (Joskow, 2006). Shorter investment time between generation and network create uncertainty for the network planning and congestions. In the economic literature, the efficiency of anticipating generation investment has been under-evaluated assuming that it is a cost free activity. Our model evaluates the effect of anticipation costs and defines in which cases the previous results by Sauma and Oren (2006, 2007) could still hold.