Facilitating power markets integration: A cooperative game with externalities approach
38 Pages Posted: 31 Aug 2021
Date Written: August 10, 2021
Regional integration can significantly reduce the cost of power system decarbonization.
The different regions must however first reach an agreement on how to share the
gains from integration. Network expansion entails network externalities that impede
the negotiation process. I use the framework of cooperative game with externalities
to analyze the outcomes of new interconnections in the US-Canada Northeast region.
The allocation of the congestion rent is both problematic and critical for reaching an
agreement. Integrating local capacity mechanisms to take into account power flow on
interconnection greatly helps to resolve that issue.
Keywords: Interconnection, Cooperative game, Externalities, Partition Function, Coalition Formation
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