NewEnergyNews: TODAY’S STUDY: New Energy Needs New Wires


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  • FRIDAY WORLD, July 20:

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  • China Taking The New Energy Lead

    Tuesday, June 07, 2016

    TODAY’S STUDY: New Energy Needs New Wires

    Well-Planned Electric Transmission Saves Customer Costs: Improved Transmission Planning is Key to the Transition to a Carbon-Constrained Future

    Judy W. Chang and Johannes P. Pfeifenberger, May 2016 (The Brattle Group)

    Executive Summary

    The electric power industry is transforming rapidly due to low natural gas prices, technological changes, dramatic cost reductions in renewable generation, and increasingly ambitious environmental policy goals and consumer preferences. The Environmental Protection Agency’s (EPA’s) Clean Power Plan (CPP) is perhaps the most visible and heavily-debated regulatory mandate in this trend toward an environmentally-constrained electricity industry. Much of the industry’s discussion about CPP and related environmental objectives has focused on energy efficiency, reducing coal-fired generation, and adding more renewable generation. This whitepaper complements those discussions by showing how a well-planned transmission system can help meet environmental objectives at lower overall costs, saving customers tens of billions of dollars compared to a system that is primarily planned to focus on more immediate needs to meet reliability requirements.

    The current uncertainties over CPP implementation are not likely to change the ongoing trend toward a clean power future, given that both market forces and policy preferences for cleaner energy sources are pushing in the same direction: natural gas prices currently are projected to remain relatively low for the foreseeable future, the costs of various renewable energy technologies continue to decrease, and customer preferences are evolving toward having more control over the their energy usage, including the energy source. Furthermore, many states, towns, corporations, and consumers are pursuing their goal of reducing emissions from electricity generation, independently of federal and state regulations. Such trends will invariably shift the country’s generation mix from coal to natural gas and renewable resources, with necessary upgrades to the nation’s transmission grid.

    A Brattle study conducted in 2008 estimated that the U.S. would need approximately $1.5−$2.0 trillion of capital investments in the power sector over 20 years. Of that total projected investment need, transmission accounted for approximately $300 billion while generation accounted for $500 billion to $1.0 trillion (with the remainder representing distribution investments). 1 A more recent study prepared for the Eastern Interconnection States Planning Council (EISPC), National Association of Regulatory Utility Commissioners (NARUC), and the Department of Energy (DOE)2 similarly projected approximately $1 trillion in generation investment needs over the next 20 years, with at $50–110 billion of interregional transmission needed to cost-effectively support the generation investments. These capital cost estimates are immense and, rightfully, they will attract the scrutiny of regulators and policymakers. However, while these estimated numbers are large, they do not yet consider how improved transmission planning can help reduce overall costs in the face of shifting generation mix, evolving regulatory requirements, and changing demands of electricity customers. Because overall investment need and costs are large, we are articulating in this paper how the industry can improve planning to achieve a more cost-effective power system and reduce customers’ overall costs.

    As we show in this white paper, a more flexible transmission grid will be a critical component for more cost-effectively serving electricity customers in a rapidly changing industry. The shifting generation mix, a more diverse geographical production patterns, trends in fuel costs, and technological improvements will require a holistic examination of how various regions and the country as a whole can take advantage of a more robust power grid that minimizes customer costs over the long term.

    Unfortunately, the industry’s traditional planning processes are not yet focused on identifying valuable transmission solutions that can address long-term uncertainties and reduce overall customer costs. In particular, as we have discussed in prior papers, much of today’s regional planning processes need improvement and the interregional planning processes are largely ineffective at identifying valuable and cost-effective interregional transmission upgrades while anticipating the future needs of the individual regions and states. The industry consequently needs to develop improved regional and interregional transmission planning processes. These efforts need to start right away to fully realize the potential future savings for at least three reasons:

    1. Transmission projects require at least 5–10 years to plan, develop, and construct; as a result, planning would have to start now to more cost-effectively meet the challenges of changing market fundamentals and the nation’s public policy goals in the 2020–2030 timeframe;

    2. A continued reliance on traditional transmission planning that is primarily focused on reliability needs will lead to piecemeal projects instead of developing integrated and flexible transmission solutions that enable the system to meet public policy goals more cost effectively; and

    3. We are in the midst of an investment cycle to upgrade or replace the existing transmission infrastructure, mostly constructed in the 1960s and 70s; this provides unique opportunities to create a more modern and robust electricity grid at lower incremental costs and with more efficient use of existing rights-of-way for transmission.

    A number of studies have shown that more “proactive” or “anticipatory” planning of the nation’s regional and interregional transmission grid would reduce U.S. customers’ overall electricity costs significantly. As summarized in this white paper, we estimate that the net savings associated with a proactive transmission planning and development process in the U.S. would range from (a) $30–70 billion of savings in total generation and transmission investment costs through 2030 for compliance with current regulations to (b) $47 billion/year of savings in annual customer bills under an even more environmentally-constrained future in which a well-planned grid significantly reduces generation investment and operating costs. These estimates are consistent with a range of U.S. and European studies showing that a robust interregional transmission system is critical to reducing the cost of achieving increasingly ambitious environmental policy goals.

    In general, the overall cost savings associated with transmission investments are not solely a function of the stringency of environmental policy goals. As explained in our 2015 WIRES report, transmission provides a wide range of value to customers while reducing the costs of meeting public policy goals. Specifically, as we have explained previously and are reiterating here, the larger magnitude of the available cost savings should make it a top priority for state and federal policymakers to recognize that a robust and flexible transmission infrastructure enables cost-effective resource options for meeting customers’ needs. As the industry transforms itself and as clean energy policies are implemented over time, a well-planned, flexible transmission infrastructure provides an “insurance policy” without which electricity customers will face higher risks of significant cost increases.

    As federal and state energy regulators and policymakers face unprecedented challenges in the industry such as accelerated technological changes, shifting customer preferences, and new environmental regulations such as the CPP, they should urge transmission planners to move beyond today’s traditional and mostly reliability-focused planning approaches. The industry needs to develop processes able to identify transmission solutions that increase future compliance flexibility while meeting anticipated environmental policy goals at lower costs and lower risks for customers.


    The power industry is undergoing a transition to a more extensive use of clean-energy resources while facing uncertainties in the magnitude and timing of those changes. These uncertainties relate to how customers will want to use electricity, the relative costs of different generation technologies, the subsidies and programs provided to different generation technologies, changes in fuel prices, and the variety of environmental policies and regulations at the local, state, and federal levels. Because the development of transmission takes at least five to ten years, the industry cannot wait to start planning for these needs until the uncertainties resolve themselves. Taking a “wait-and-see” approach would foreclose the development of lower-cost options for meeting the challenges and more ambitious policy goals that will invariably be faced by the industry over the course of the next decade. To address the future uncertainties and face the policy challenges more proactively, policymakers and regulators must engage now in evaluating the critical role that transmission investments can play in mitigating the risks of high-cost future outcomes and in reducing the overall cost of electricity to customers.

    As we move forward with addressing the challenges of a rapidly changing industry and increasingly ambitious environmental objectives, policymakers and regulators should ask the utility and regional planners to undertake a careful assessment of how transmission can reduce the cost of compliance with these regulations. Such careful assessment should include using scenario-based long-term planning, taking into consideration many of the trends and uncertainties described above. Considering coal plant retirements and integrating new renewable energy resources onto the grid in light of the current uncertainties will require a flexible and robust transmission infrastructure. In particular, regional and interregional transmission infrastructure plays a critical role as it can simultaneously improve system reliability, reduce generation capital investment costs, and integrate a diverse set of lower-cost renewable resources. Thus, having a robust and flexible regional and interregional transmission infrastructure will become a critical component to lower the overall cost of the U.S. states’ environmental and energy policy strategies.

    Simply looking at renewable energy resource maps for North America shows where the most cost-effective renewable energy resources can be captured and integrated. Many cities and states across North America have announced their commitment to increase their reliance on renewable energy resources. Thus, even without the requirements set by EPA’s CPP, building a robust grid that ensures reliability while facilitating the integration of low-cost renewable resources will need to be a part of the path forward. Even in areas where distributed generation has begun to provide a significant portion of individual customer’s electricity needs, the European experience shows that transmission infrastructure will continue to be needed to compensate for the intermittency of these resources and to help balance the broader regional electricity system.

    Transmission planning for a clean energy future must begin now if policymakers want to avail themselves of lower-cost compliance options and reduce the risks to customers posed by highcost futures and piecemeal transmission solutions that would involve higher costs over the long term. Improving and, in some instances, overhauling the way transmission is planned is necessary to address the challenge of incorporating more clean energy into our future. To capture the low cost opportunities, states and regions will need to collaborate more actively. Active collaboration will include joint planning and cost sharing of interregional transmission infrastructure that can make the significant benefits accessible to a wider range of states and beyond the existing regional boundaries. This collaboration will need to go well beyond the current practice of exchanging planning data, agreeing on transmission benefit metrics, and the sharing of planning assumptions and project proposals as required under FERC Order No. 1000. It will require regional planners and policymakers to develop actionable interregional transmission plans that recognize the benefits of a more robust interregional grid to facilitate the development of a more diverse and lower-cost set of resources that provide valuable compliance options under a wide range of future states of the bulk power industry.

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