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Broad smart-grid implementation could enable the deployment of flexible and adaptive transmission networks, thus allowing for the transmission topology to be optimized depending on electricity demand and other system conditions. One suite of technologies that would facilitate real-time transmission optimization includes Flexible Alternating Current Transmission Systems (FACTS), which use power-electronic switching to enact fast changes to the electrical network topology. FACTS technologies could be centrally controlled by system operators, as is the currently the case with transmission assets, or they could be dispatched alongside generation in hourly electricity markets. We formulate the profit-maximizing objective of FACTS device owners and the cost-minimization objective of transmission system operators as a multi-level Mathematical Program with Equilibrium Constraints, and characterize equilibrium in such a market on small systems. Bidding by FACTS devices introduces non-convexities into the market that can lead to so-called “Nash Traps” under which local optima are mis-identified when computing market equilibria. We examine strategic bidding behavior under multiple compensation mechanisms by FACTS device owners. When FACTS devices are compensated using a clearing price-mechanism, the owners of such devices have incentives to relieve congestion in transmission-constrained systems. When FACTS devices are compensated based on locational price differentials, device owners no longer have the same incentives. FACTS devices may be characterized as transmission-type assets, but in a market design context should be treated more like generation assets. Host: Russell Bent, Energy and Infrastructure Analysis D-4/Decision Applications |