No Grid, No Gain: Untangling the Transmission Tie-up

Great strides have been made in enacting state renewable energy standards (RES) in the United States, which significantly affect the urgency of developing new renewable energy facilities. Also called Renewable Portfolio Standards and Alternative Energy Portfolio Standards, over 30 states have adopted RES mandates. These initiatives are paving a path toward a more economically and environmentally sustainable and secure energy future for America.

Success to date notwithstanding, one primary hurdle facing renewable developers stems from limitations to the existing transmission grid. Simply put, efforts to integrate renewable generation into the U.S. energy mix have frequently been stymied by the lack of available transmission facilities. For example, the Midwest has been colloquially called the “Saudi Arabia of wind” because of tremendous wind resources in the Great Plains. However, this most windswept region of the nation tends to be overwhelmingly rural and lacks the transmission facilities that would allow wind generated electrons to be transmitted to major urban markets such as Chicago, St. Louis and Kansas City.

Nevada has the highest solar energy potential in the nation. The U.S. Department of Energy calculates that 10,000 square miles of Nevada land could supply all U.S. electricity needs with current commercial efficiency rates. However, as Nevada Economic Development Commission Executive Director Mike Skaggs has noted, development of Nevada’s ample solar energy resource is hindered by the fact that a “significant portion of the area feasible for renewable energy generation is not currently connected to adequate transmission technology.” Nevada’s transmission challenges are not atypical.

How bad is the transmission tie up? A white paper jointly issued by the American Wind Energy Association (AWEA) and the Solar Energy Industries Association (SEAI) estimated that in 2009 up to 300,000 MW of wind projects faced potential deployment delays due to an inability to connect to the grid. For utility-scale solar in California alone, the figure was estimated at 13,000 MW.

Transforming the nation’s existing transmission system so that it can accommodate the needs of renewable developers is a significant challenge. For clean energy, it’s clearly a case of no grid, no gain.

Tied in a Knot

That transmission access for utility-scale renewable energy is tied in a knot is not surprising given that America’s electricity transmission system is a legacy of a period in which large vertically integrated utilities planned, developed, owned and financed generation. The system grew up within the regulatory framework of state public utility commissions that approved transmission system planning and financing. Often, generation was located near urban areas where demand is concentrated.

Coal plants could be near rail lines in out-of-the-way places like the Four Corners Region of Arizona, Utah, Colorado and New Mexico. Transmission lines were built to move coal-fired generation to load centers. However, unlike footloose coal plants (which can receive coal from remote sources via rail), wind and solar must be farmed where the wind blows and sun shines. And many of these renewable sites are located where existing lines are either absent, undersized or already over-subscribed.

Within this legacy framework, transmission system planning evolved along state lines, governed by laws requiring state public utility commissions to use a lowest-cost-to-consumer test when approving transmission improvements. The Energy Policy Act of 2005 sought to broaden system planning to a regional basis by enabling groups of three or more states to form regional transmission organizations (RTO).

However, the nation’s grid remains a patchwork with some transmission capacity collaboratively planned and managed by RTOs while elsewhere, grid ownership remains the province of individual utilities that range in size from small rural cooperatives to large multi-state systems such as Pacificorp and Southern Co.

The obstacles posed by this patchwork can be seen at the California-Nevada border, where the transmission network operated by California’s RTO (the Independent System Operator) ties into a system still regulated exclusively by Nevada. By law, Nevada regulators cannot consider the impacts of investments in the state transmission system upon California’s access to sun, wind and geothermal energy farmed in the Silver State. The inability of these two key players to uniformly plan and manage transmission impairs the ability of the California to draw upon Nevada’s renewable energy resources to meet its recently signed into law RPS target of acquiring 33 percent of its electricity from renewable resources by 2020.

Then there is the issue of finance. While procedures vary, grid interconnection procedures in general require a renewable energy project developer to apply for a queue position for system impact and facilities studies, sign interconnection agreements and then pay for new transmission capacity or system upgrades necessary to carry the full generation output to market, even if needed upgrades are network improvements.

Within this context, two problems stand out. First, prior to wholesale electric power market deregulation, utilities planning new generation could act with the assurance that their costs for building new generation would eventually be rate based by their respective public utility commissions. However, wholesale market deregulation gave rise to independent project development, meaning that renewable energy developers must incur not only the up-front cost of financing new renewable generating plant planning and construction, but also the up-front cost of financing new transmission capacity. This was true even though it may take from three to five years or more from project inception to energy production for the developer to begin collecting revenues. As with other form of construction, delays in starting a renewable generation project can add to its cost.

Second, the current system encourages free-ridership, which encourages project developers to try to avoid upfront network-wide grid improvement costs. Such jockeying may account for the proliferation of so-called “phantom projects,” which, although entered into the queue, are never built. The relatively low $100,000 cost typical for entering the queue may contribute to such maneuvering. The effect of such phantom projects, however, can be to delay and raise costs for more feasible green energy projects.

Reflecting upon the grid connection conundrum, AWEA and SEIA concluded “Our nation’s obsolete patchwork of an electric grid, while adequate for the era in which it was designed…have failed to keep up with significant changes in the structure of the electric industry.” The question is, what can be done to pave a pathway to getting the nation’s green energy assets onto the grid in a timely and cost-effective manner?

Getting Green Energy on the Grid

In October 2009, the Federal Energy Regulatory Commission (FERC) issued a Notice of Proposed Rulemaking (NOPR), kicking off a broad stakeholder initiative aimed at easing integration of renewables into the grid. A good place to start is with a proposal by AWEA and SEPA to develop a system of “National Green Power Superhighways.” The proposal aims to build a network of new transmissions lines capable of moving up to 5,000 MW of power from rural solar and wind energy farms to load centers in large urban areas in the Southwest, Midwest and along the eastern seaboard.

Implicit are changes in the way new transmission for utility scale renewable energy is planned and permitted and how costs are allocated. A regulatory system to govern new large transmission facilities needed to expand the nation’s clean energy portfolio would only apply to new interstate high-voltage transmission and renewable energy feeder lines. In the balance of this article we look at what a new approach to ensuring adequate grid access for renewables might look like.

As noted above, current state laws require that only benefits that accrue to providers and consumers within state borders be considered in new transmission siting. Unfortunately this approach does not acknowledge the potential regional and national benefits that can be derived from expanded renewable energy generation. While most states, and especially those that have adopted RES mandates, recognize the need to consider both the demand and potential supply of renewables across state lines, regulatory structures have not kept apace of the perceived need.

One of the purposes of the Energy Policy Act of 2005 was to grant FERC authority for siting interstate lines, upgrades and or expansions by designating interstate transmission congestion corridors. The legislation granted FERC siting authority if states withhold approval for needed transmission in these corridors.

Thus far, FERC’s ability to act under the 2005 law has been tied up in litigation. For example, on Feb. 1, 2011, the 9th Circuit Court of Appeals ruled that the Department of Energy had failed to follow the provisions of the National Environmental Policy Act when it designated National Interstate Electric Transmission Corridors in 2007 because it had failed to properly consult with affected states and did not make an adequate assessment of the environmental effects of the corridor designation. While subject to appeal to the U.S. Supreme Court, this decision adds another element of uncertainty into the applicability and effectiveness of the 2005 Act in addressing the challenge of bringing renewable generation to load centers.

A better approach to ensuring that renewable energy generated in one state can find its way to market in another would be to mimic the authority FERC currently possesses for siting of interstate natural gas pipelines and apply it to renewable energy projects. Adopting this model to overcome transmission congestion and facility limitations that currently hobble renewable energy would involve granting FERC full siting authority over new high voltage transmission assets needed to allow states to meet their RES targets. FERC would be a one-stop shop, acting as the lead agency for coordinating all requisite authorizations and reviews needed to plan and construct new transmission lines. Furthermore renewable energy developers would be granted first priority for connecting to and long-term capacity rights for transmission improvements needed to allow states to meet their RES targets.

An essential step in creating the green energy grid involves designation of renewable energy zones. Work on this is already underway under the aegis of a task force appointed by the U.S. Department of the Interior in 2009. According to Interior Secretary Ken Salazar, the task force is to identify specific zones on federal lands that will facilitate a “rapid and responsible move to large-scale production of solar, wind, geothermal, and biomass energy… to connect the sun of the deserts and the wind of the plains with the places where people live.”

Federal designation of renewable energy zones will provide a framework within which FERC can act to plan and authorize the transmission investments needed to create the green grid.

Straightening out planning and siting is a necessary but insufficient step for creating the green grid. The challenge of financing projects must also be addressed. At a minimum, the costs of grid investments that are needed to maintain system reliability should be spread across all load-serving entities and not fall upon new transmission needed to help states meet their RES targets. The New England states already do this. The practice should be put into place elsewhere.

Modifications should also be made to the green energy bidding process so that load-serving entities would have to consider the benefits of transmission upgrades needed to accommodate new RES related renewable generation in their bid assessments. Regulators need to rethink the merits of current procedures that place a premium on being first in line in terms of transmission access.

Another step is to modify existing transmission rate design structures so that in areas outside of organized RTOs tariffs are based upon energy output and not capacity. This approach would favor renewable resources that have low capacity factors because of the intermittent nature of renewable resources.

Getting renewable energy onto the grid will require a fundamental reassessment of practices that have governed transmission access in the past. The renewable energy industry pulled a rabbit out of the hat in late 2010 by winning a one year extension of the Section 1603 cash grants. The loss of these grants threatened to take the air out of the green economy and the tens of thousands of jobs that renewable energy provides. As the industry and its supporters look to the future, they need to develop a coordinated strategy to ensure that transmission policy supports attainment of state RES goals.

It is important that renewable advocates work on both the state and federal level to ensure that the full potential of renewable energy can be realized through a transmission grid that enables clean renewable energy to make an unimpeded journey from the farm to the feeder to the fuse box.

Matt Slavin, Ph.D. is founder and principal of Washington D.C.-based consultancy SustaingrĂ¼p, helping business and government deploy clean energy innovation and embrace sustainable business practices. Jason Zeller is an assistant chief council with the California Public Utilities Commission and former manager of the Washington State Energy Facility Site Evaluation Council with more than 30 years of experience in all aspects of public utilities and energy. Tatyana M. Brown contributed research support.

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