Game-theoretic modeling of transmission line reinforcements with distributed generation

Favourable sites for renewable generation are often remote locations (such as islands) where installed capacity, e.g. from wind turbines, exceeds local aggregate demand. We study the effect that curtailment mechanisms - applied when there is excess generation - have on the incentives to build additional capacity and the profitability of the generators. Next, for a two-location setting, we study the combined effect that curtailment schemes and line access rules have on the decision to invest in transmission expansion. In particular, for "common access" rules, this leads to a Stackelberg game between transmission and local generation capacity investors, and we characterise the equilibrium of this game. Finally, we apply and exemplify our model to a concrete problem of a grid reinforcement project, between Hunterston and the Kintyre peninsula, in western Scotland, and we determine a mechanism for setting transmission charges that assures both the profitability of the line and local renewable investors.