In the context of centralized electricity markets, we propose an integrated planning model for power pricing and network expansion, which endogenizes the scaling costs from power losses. While the substitutability pattern between pricing and expansion has been overlooked in the power flow optimization literature, this becomes particularly relevant in centralized electricity markets (where the headquarters are enabled to take decisions over a wide range of operational factors). In this paper, we tailor an optimization model and solution approach, that can be effectively applied to large-scale instances of centralized power systems. Specifically, we develop bounds to the optimal operator profit and use them within a mixed-integer linear programming problem, derived from the linearization of an extended power flow model. On the empirical side, we conduct computational tests on a comprehensive power system data set from the Saudi Electricity Company, uncovering the value of the proposed integrated planning. The results reveal the complex substitutability patterns which appear when deciding about integrated operational factors in centralized power systems and support the correctness and efficiency of the proposed resolution mechanism.
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IESEG School of Management, 3 rue de la Digue, 59000 Lille, France. LEM-CNRS 9221, 3 rue de la Digue, 59000 Lille, France.
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