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.