Common Tragedies

Thoughts on Environmental Economics

It’s the remix to transmission

Posted by Rich Sweeney on December 10, 2008

Barack Obama has promised to make it rain on the energy industry.

He should start by investing in high-voltage electricity transmission.

Lots more below the jump.

There is an emerging consensus that America must significantly reduce its carbon emissions and renewable electric power is seen by many as the key to achieving this goal. Forty percent of America’s CO2 emissions come from the electric power sector, and unlike the transportation sector, clean, economical alternatives are available right now. Yet while it is true that America has an abundance of renewable electric energy potential, the cheapest and highest quality sources are located far away from load centers and existing transmission lines. This presents a major barrier to renewable electricity adoption, as the modern electricity market and its regulations are not very well suited to expanding electricity transmission in general, and integrating renewables in particular. As part of a broader effort to modernize our electric power system, improve its regulation, and reduce our nation’s carbon emissions, the federal government should take direct action to encourage high-voltage transmission expansion with the explicit aim of transporting high value renewable energy to highly stressed load centers.

In contrast to fossil fuel power plants, which can be located anywhere, renewable power plants have to be located where the resource is. In the United States, electricity demand is highly concentrated on the coasts, while the best wind resources are located in the plain states and the best solar resources are located in the southwest. Unfortunately, the current electricity market and regulatory system is ill suited for making the coordinated investments necessary to bring these resources to market. The current grid was largely built during the days of regulated regional monopoly, which, for all its other shortcomings, was particularly good at mobilizing capital and coordinating investments. Since deregulation began, transmission expansion has lagged considerably behind generation investment. While recent developments have improved intra-regional investment situation a little bit, the interregional investment situation is essentially deadlocked as the incentives to invest are not well aligned. Costs are largely recovered with local rates, despite the fact that the whole grid benefits from reduced congestion. Justifying transmission expansion is particularly hard when it comes to new renewable generation, which invokes the classic chicken-and-egg problem: utilities and transmission operators don’t want to build transmission to places where there isn’t any power; and investors don’t want to build turbines or solar plants in places where there isn’t any transmission. Finally transmission siting is a complicated and uncertain process, plagued by NIMBYism and bureaucracy, and hold-ups in one region can derail an entire project.

In response to these challenges, the Federal Government should invest heavily in new, high voltage transmission, with the explicit aim of promoting renewable energy. Rules and regulations for these lines should be federalized and siting should be fast tracked. The federal government could set broad renewable energy capacity and congestion alleviation targets, and FERC or the DOE could be given discretion in approving individual projects. Investment could occur through direct spending and grants to utilities and transmission operators, with the costs at least partially recovered through a postage stamp tax on electricity, just like the national highway system investments of the 1950s.

This plan would have several benefits. First, it would promote renewable energy by providing market access to renewable resources. This would in turn reduce the costs of any additional climate policies, such as a nationwide carbon cap or renewable portfolio standard, by ensuring that the highest value resources are utilized. In a recent paper, my co-authors and I found that expanding transmission capacity into the plains states and the northwest had the potential to significantly increase renewable energy investment under a baseline scenario, and significantly reduce renewable energy credit prices under a national renewable portfolio standard. Intelligent planning at the generation end could further promote renewables by significantly reducing the net intermittency of their output through geographical dispersion. In addition to the climate benefits, these investments would provide badly needed transmission expansion and increased generation. Recent DOE studies have shown that load centers in the northeast and California are critically congested. Prioritizing lines to those centers would increase reliability and provide access to lower cost electricity.

President Elect Obama has pledged to spend large amounts of government money in order to stimulate the economy; there are few better places to start than electricity transmission. In general, large infrastructure investments are comparatively easier to justify than other activities, and, as the cascading failures of the 2003 blackout highlighted, there is a public good argument to be made when it comes to transmission. In this case there is an additional market failure involved, as the market currently undervalues renewable energy and overvalues dirty generation by not internalizing the costs of carbon emissions. Fortunately, unlike many other goods, the government has a reasonably good chance of identifying high value investment sites. Regional price differentials indicate congestion, and the national laboratories have already mapped renewable resource availability. Furthermore, we already heavily promote renewable generation. But, as recent negative wholesale electricity prices in wind rich but capacity constrained west Texas demonstrate, it is just as important to promote renewable transmission. As electricity demand increases and old generators retire, we know that we are going to need new transmission and new generation anyways. By investing heavily and intelligently in transmission now, the government can ensure that these necessary additions also help us achieve our climate policy goals as well.

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13 Responses to “It’s the remix to transmission”

  1. Anthony said

    Perfect timing with this post as the Senate Energy and Natural Resources committee met this morning to discuss the very topic. I had the webcast playing in the background and therefore wasn’t dedicating 100% of my attention to the proceedings, but a couple of things stood out. Each of the witnesses had their own opinions as to the necessary dollar amounts needed to get a national smart-grid up and running in addition to all the other components (infrastructure financing, industry subsidies, RD&D funding, etc.) that should compose a sustainable stimulus package. Their numbers were by no means a small range, from $15B on the low end to in excess of $150B, over the next 5(?) years. Another point, comical in my view, was Senator Bunning’s (R-KY) request that you “raise your hand if you’re not in favor of carbon-free coal.” No one dared for fear of a Bunning fastball. Considering his staunch support for CTL and no proven CCS demos in the US, just how is he going to get carbon-free (what about methane-free?) coal?

  2. [...] Samuel Bodman and Treasury Secretary Hank Paulson. He pitched them on the idea of an interstate electricity transmission system to be paid for by ratepayers. That would solve one of the biggest hurdles to wide-spread [...]

  3. Hunter said

    Why can’ the coasts generate the electricity they need on their coasts? When do we need a huge gubbement project to crap up the open areas in the Midwest and Southwest with windmills and solar panels? If life on the coasts isn’t sustainable in a no-carbon footprint manner, then it should move elsewhere. It’s not my fault that millions of people are living in LA and NYC without any “green” power sources. Tell those folks to use less and not destroy the desert I live in. This is just more coastal urban-centric arrogance.

  4. So how will this be about anything but providing a superhighway for coal? MISO’s Midwest Market’s express purpose is to “displace natural gas with coal” and market prices being what they are, CO2 costs won’t put coal out of reach. There’s a lot of coal waiting in queue in the Dakotas and it’s far ahead of wind in the queue and studies for some are ready, all they need is transmission. FERC rules prohibit discrimination by generation type, transmission services cannot be restricted, so how is this anything but transmission for coal? And then there’s all those affected. For the CapX 2020 project, Phase I only, there are over 80,000 potentially affected landowners in Minnesota. We don’t need to do it this way. Renewable Energy Standards, or any other renewable mandates, must also incorporate SHUT DOWN of fossil generation, and that’s missing from all thus far. When those fossils are shut down, there’s room for renewable. Also, look at the major decrease in consumption. Utilities admit caution is necessary, and they shouldn’t jump into building infrastructure. Recap: 1) It’s about market; 2) It’s about coal; 3) Distributed and dispersed generation and 4) RES must be linked with fossil fuel shutdown. We can do this, and we can do it now… why, we’re already doing it!

  5. [...] Samuel Bodman and Treasury Secretary Hank Paulson. He pitched them on the idea of an interstate electricity transmission system to be paid for by ratepayers. That would solve one of the biggest hurdles to wide-spread [...]

  6. [...] Samuel Bodman and Treasury Secretary Hank Paulson. He pitched them on the idea of an interstate electricity transmission system to be paid for by ratepayers. That would solve one of the biggest hurdles to wide-spread [...]

  7. B Woods said

    One major hurdle of treating transmission as a potential economic stimulus is that new transmission can take a very long time to receive necessary routing approvals, particularly environmental ones.

  8. [...] Samuel Bodman and Treasury Secretary Hank Paulson. He pitched them on the idea of an interstate electricity transmission system to be paid for by ratepayers. That would solve one of the biggest hurdles to wide-spread [...]

  9. Hydra said

    Well, Hunter, I suppose they could all move tot he desert, where you live.

    Of course, thenthey might need a huge gummint program to bring in the water.

  10. Hydra said

    I’d suggest one reason that transmision siting is plagued by NIMBYism is that it is one of those externalities not properly internalized inthe cost of carbon generation. The eminent domain rules used to take the necessay land are confiscatory, at best. Why should it be any different fir generation using renewables?

    Except, I doubt we will hear very much about it, if it is an externality to renewables generation.

  11. Brian W. said

    Renewables such as wind would get my support when wind generation can supply vars onto the grid. Don’t waste my time with suggestions of getting rid of coal plants that have huge rotating mass with green friendly wind that only seems to generate electricity at night when we don’t need it!

  12. [...] Samuel Bodman and Treasury Secretary Hank Paulson. He pitched them on the idea of an interstate electricity transmission system to be paid for by ratepayers. That would solve one of the biggest hurdles to wide-spread [...]

  13. [...] Samuel Bodman and Treasury Secretary Hank Paulson. He pitched them on the idea of an interstate electricity transmission system to be paid for by ratepayers. That would solve one of the biggest hurdles to wide-spread [...]

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