AbstractA new bi‐level programming model for market‐based transmission network expansion planning is presented in the paper. Open access transmission brings new challenges to transmission network expansion planning. From the transmission corporation's view, the goal of optimal transmission network expansion planning scheme should not only bring the optimal transmission profit in the market, but also ensure high operation security and reliability, meanwhile social welfare is necessary to be accounted for. In this paper, the upper level programming considers transmission profit maximization in long‐term planning, the lower level programming considers the social welfare maximization in short‐term operation. Furthermore,N−1 security constraints are also considered in the model. A hybrid algorithm integrated with niche genetic algorithm (GA) and primal‐dual interior method is adopted to solve the proposed bi‐level programming model of the transmission network expansion planning. The planning methodology has been demonstrated on the 18‐bus system to show the feasibility and validity, moreover, comparison has been made between traditional transmission expansion plan and proposed market‐based transmission expansion plan; it was also applied to the real life system 77‐bus system transmission grid. Copyright © 2010 John Wiley & Sons, Ltd.