An approach to the explicit consideration of unreliability costs in transmission expansion planning Joa ˜o Ricardo P. Barros 1 , Albert C. G. Melo 2§ and Armando M. Leite da Silva 3, * ,y,z 1 The Hydro Electric Company of Sa ˜o Francisco, CHESF, Recife, Brazil 2 The Electric Power Research Center, CEPEL, Rio de Janeiro, Brazil 3 The Power System Unit, INESC Porto, Portugal SUMMARY This paper proposes a new methodology to explicitly consider unreliability costs in a multi-stage transmission expansion planning. Starting from a reference plan, alternative expansion plans are derived based on postpone- ment/anticipation of circuit implementations. These plans are then ranked by using an economic index of merit (EIM) and the associated Pareto-optimal set is obtained through cost/benefit (trade-off) analyses. The cost/benefit is related to the variation of investments and operational costs of each alternative transmission plan. Besides the usual operational costs (active power losses, fuels, etc.) the unreliability costs, due to random failures in the system, are also considered as operational costs. Therefore, reliability evaluations are carried out for all transmission expansion plans (TEPs) in order to compute reliability indices, such as the Expect Energy not Supplied and Loss of Load Cost (LOLC). To reduce the computational effort, pruning techniques are used to limit the number of possible TEPs. The proposed approach is applied to a configuration of the Brazilian North-eastern system, considering a planning horizon of 10 years, to identify TEPs that are more balanced in terms of investment and reliability. Copyright # 2007 John Wiley & Sons, Ltd. key words: transmission expansion planning; probabilistic methods; reliability worth; trade-off analysis 1. INTRODUCTION The main objective of the transmission expansion planning is to define where, when and what reinforcements should be placed in the electrical network to ensure an adequate level of energy supply to customers, taking into account the load growth and new generator capacities. Several papers on this subject have been published in the literature [1–12]. Usually, the expansion planning horizon is divided into short-, medium- and long-term periods in accordance with the type of decisions to be made and with the quality of the available data and information involved in the planning process. EUROPEAN TRANSACTIONS ON ELECTRICAL POWER Euro. Trans. Electr. Power 2007; 17:401–412 Published online 7 March 2007 in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/etep.158 *Correspondence to: Armando M. Leite de Silva, Institute of Electrical Engineering, Federal University of Itajuba ´ (UNIFEI), Minas Gerais, Brazil. y E-mail: armando@unifei.edu.br z Prof. Leite da Silva is on sabbatical leave from UNIFEI, Brazil. § Also with: Rio de Janeiro State University, UERJ, Brazil. Copyright # 2007 John Wiley & Sons, Ltd.