Optimal transmission planning under the Mexican new electricity market

This paper addresses electricity transmission planning under the new industry and institutional structure of the Mexican electricity market, which has engaged in a deep reform process after decades of a state-owned vertically -integrated-non-competitive-closed industry. Under this new structure, characterized by a nodal pricing system and an independent system operator (ISO), we analyze welfare-optimal network expansion with two modeling strategies. In a first model, we propose the use of an incentive price-cap mechanism to promote the expansion of Mexican networks. In a second model, we study centrally-planned grid expansion in Mexico by an ISO within a power-flow model. We carry out comparisons of these models which provide us with hints to evaluate the actual transmission planning process proposed by Mexican authorities (PRODESEN). We obtain that the PRODESEN plan appears to be a convergent welfare-optimal planning process.