  This paper investigates the role of a transmission system operator within a
carbon footprint reduction strategy incorporating carbon taxes and renewable
energy generation subsidies in the decentralised energy market. This is
achieved via an optimisation bi-level model in which a welfare-maximizing
transmission system operator makes investments in transmission lines at the
upper level while considering power market dynamics at the lower level. To
account for the deregulated energy market structure, this paper assumes that
the generation companies at the lower level make capacity investments as
price-takers in perfect competition. Considering alternative transmission
infrastructure expansion budgets, carbon emission taxes and monetary incentives
for renewable energy generation capacity expansion, the impact of alternative
compositions of these factors is analysed against three output factors: the
share of renewable energy in the generation mix, total generation amount, and
social welfare. The proposed modelling assessment is applied to an illustrative
three-node instance and a case study considering a simplified representation of
the energy system of the Nordic and Baltic countries. The results highlight
that, under certain circumstances, renewable energy generation subsidies may
lead to an increase of renewable energy in the generation mix followed by a
simultaneous fall in the total generation amount. Nevertheless, when applied
together, these three measures demonstrated a positive impact on all output
factors within Nordics' and Baltics' energy systems. The experiments
additionally suggest that considering the high value of the carbon tax does not
have an impact on the output factors while the composition of high values of
renewable energy generation subsidies and budget for transmission
infrastructure expansion has the strongest effect.
