2086 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 28, NO. 3, AUGUST 2013 A Nash Approach to Planning Merchant Transmission for Renewable Resource Integration Qun Zhou, Member, IEEE, Leigh Tesfatsion, Member, IEEE, Chen-Ching Liu, Fellow, IEEE, Ron. F. Chu, Fellow, IEEE, and Wei Sun, Member, IEEE Abstract—Major transmission projects are needed to integrate and to deliver renewable energy (RE) resources. Cost recovery is a serious impediment to transmission investment. A negotiation methodology is developed in this study to guide transmission investment for RE integration. Built on Nash bargaining theory, the methodology models a negotiation between an RE generation company and a transmission company for the cost sharing and recovery of a new transmission line permitting delivery of RE to the grid. Findings from a six-bus test case demonstrate the Pareto efficiency of the approach as well as its fairness, in that it is consistent with one commonly used definition of fairness in coop- erative games, the Nash cooperative solution. Hence, the approach could potentially be used as a guideline for RE investors. The study also discusses the possibility of using RE subsidies to steer the negotiated solution towards a system-optimal transmission plan that maximizes total net benefits for all market participants. The findings suggest that RE subsidies can be effectively used to achieve system optimality when RE prices are fixed through bilateral contracts but have limited ability to achieve system optimality when RE prices are determined through locational marginal pricing. This limitation needs to be recognized in the design of RE subsidies. Index Terms—Game theory, generation interconnection, merchant transmission, Nash bargaining, renewable energy inte- gration, renewable portfolio standard. NOMENCLATURE Indices and sets: Index for buses. Index for scenarios. Index for subperiods. Index for generators. Manuscript received July 12, 2011; revised February 07, 2012, June 29, 2012, September 07, 2012, and October 21, 2012; accepted November 08, 2012. Date of publication January 15, 2013; date of current version July 18, 2013. Dis- claimer: This study reflects the views of the authors and not the views of their institutions or affiliations. Paper no. TPWRS-00652-2011. Q. Zhou is an independent consultant to the project (e-mail: qunzhou@ieee. org). L. Tesfatsion is with the Department of Economics, Iowa State University, Ames, IA 50010 USA (e-mail: tesfatsi@iastate.edu). C.-C. Liu is with the Energy Systems Innovation Center, Washington State University, Pullman, WA 99164 USA, and also with the School of Mechanical and Materials Engineering, University College Dublin, Dublin, Ireland (e-mail: liu@eecs.wsu.edu). R. F. Chu is an independent consultant to the project (e-mail: ron.chu@ieee. org). W. Sun is with the Electrical Engineering and Computer Science Depart- ment, South Dakota State University, Brookings, SD 57007 USA (e-mail: wei. sun@sdstate.edu). Digital Object Identifier 10.1109/TPWRS.2012.2228239 Index for loads. Index for supply or bid blocks. Index for transmission lines. Index for the RE generation unit of the RE generation company (RE-GenCo). Sending-end of transmission line . Receiving-end of transmission line . Planned bus location of the RE unit . Set of all system buses. Set of all time subperiods. Set of all scenarios. Set of generators at Bus . Set of loads at Bus . Set of blocks for Generator . Set of blocks for Load . Set of conventional generators. Set of RE generators. Set of existing transmission lines. Set of candidate transmission lines. Set of all system generators. Set of all system loads. Parameters: Duration of subperiod . Offer price of the th block by the th generator. Bid price of the th block by the th load. Annualized investment cost for transmission line . Size of the th block for the th generator. Size of the th block for the th load. Size of the th block for the th RE generator at subperiod in scenario . Transmission capacity of line . Transmission reactance of line . 0885-8950/$31.00 © 2013 IEEE