This paper explores the application of real options for transmission investment analysis under deregulation. In recent years, real options analysis has gained wide recognition for its superiority in dealing with uncertainty and managerial flexibility in non-financial or "real" investments. In the electric power arena, generation companies have been quick to realize their importance in the valuation of assets and in risk management. In comparison however, the application of real options for transmission investments has been limited. This paper presents the problem formulation and analysis approach for real options analysis in transmission investments with illustrative examples