Simulation of the long-term dynamic of a market-based transmission interconnection

Competitive markets set a framework in which unregulated market-based interconnections are allowed and encouraged. However, the presence of merchant transmission lines in the role of interconnector raises questions about the impact of these agents on the market conditions and system operation. The interconnector could be allowed to withhold capacity in order to keep the price difference (and profit of it) or be enforced by a must-offer provision to bid all its capacity. In this paper, the long-term dynamic of a market interconnection is studied and analyzed in a test system through a bottom-up simulation model. The outcomes are measured by the level of electricity prices along the simulated period and the annual amount of energy not supplied. The results show that the prices are strongly affected in the average value and in the standard deviation. The benefits of an interconnection as regards reliability are not hidden by the merchant nature of the interconnector. The results of the simulation show that letting the interconnector to control the bids of capacity offered to the markets is not detrimental to the markets. However, there is a lost of benefits compared with the case of a mandatory must-offer provision if compared at the same capacity of transmission line.