The western grid that stretches from Denver to San Francisco and from Vancouver to Tijuana is a vast single interconnected electrical system. It is currently operated jointly by 38 different agencies, including the California Independent System Operator (CAISO). How that grid is used is rapidly evolving as solar and wind energy grow and coal generation is phased out and use of natural gas is reduced. Solar and wind generation are now the lowest cost new sources of power across the West. The way the western transmission system is planned and used needs to catch up with that fact.
California’s has shown that smart transmission planning can open up areas where renewable resources are abundant and make clean energy available to consumers across the state. A surge in investment in new transmission projects from 2005 through 2016, put California in its current enviable position of leadership in renewable energy development. Having recently achieved the legislative goal of getting 33 percent of its electricity from renewable sources, California is now well on its way to achieving 50 percent renewable generation by 2025, with the goal of 100 percent clean energy now on the horizon. A well-planned regional grid will help lower the cost of meeting those landmark goals.
A well-planned high voltage grid is important for many reasons beyond simply enabling the movement of energy from one place to another. It also facilitates reserve sharing, supports regional power flows and allows for the import and export of clean power that benefits all consumers who are connected to the grid. It enables the continued development of rooftop and local solar generation by providing a reliable and stable electrical system into which these resources can be integrated. The logical next step for transmission planning is to regionalize grid management and planning across the entire West.
California’s recent investments in new transmission for renewable energy development can serve as an example for renewable energy integration across the vast interconnected western grid. A well-planned and operated regional grid is an important tool that energy policymakers in California and other states can use to accelerate the reduction of greenhouse gases from power generation.
New Transmission Opened Opportunities for Renewable Energy Development
From 2005 to 2016, California’s utilities invested nearly $10 billion in transmission projects to enable the development of renewable energy to meet California’s renewable portfolio standard. Three big projects, the Tehachapi Renewable Transmission Project (TRTP), the Sunrise Powerlink Project, and the Devers to Palo Verde 2 Project, opened up the remote renewable-rich areas of the Antelope Valley in Kern and Los Angeles counties, the Imperial Valley, and the eastern half of Riverside County. New substations and high voltage power lines enabled dozens of renewable energy companies to develop large-scale solar, wind and geothermal projects. These projects brought new economic development opportunities to historically disadvantaged sections of California.
These three big projects and several smaller transmission system upgrades in the Central Valley have enabled utility-scale solar projects in California to grow 30-fold from 407 megawatts in 2008 to 12,479 megawatts in 2017. Meanwhile, wind generation in California, which was a more developed technology in 2008, more than doubled over the decade to 5,631 megawatts.
New Transmission Has Driven Down the Costs of Wind and Solar Generation
California’s decision to procure large amounts of solar energy over the past decade has been nothing less than transformative for the solar industry. In ten years, solar energy prices declined by more than 75 percent. In 2008, utilities paid over $150 per megawatt-hour for solar power. In 2017, the Modesto Irrigation District entered into a contract for solar power connected to the Colorado River Substation at a price of $34.22 per megawatt-hour. By any measure, California’s policies and decisions to expand transmission have been an enormous success.
These solar cost reductions would not have happened as quickly without the early commitment by the California Independent System Operator (CAISO), the California Public Utilities Commission (CPUC) and the state’s utilities to expand the transmission system.
Transmission Promotes Regional Diversity and Improves Electric Service Reliability
The value of regional diversity in lowering energy costs has been well understood going back to the Kennedy Administration when the first stage of the Pacific Intertie was approved connecting California with the Pacific Northwest. All told, four high voltage power lines have been built that tie together the region’s electric systems. These north-south high voltage power lines have facilitated the vast transfer of power to the Pacific Northwest during the winter when demand there is the highest and south to California during the summer for almost 50 years.
And with better regional coordination of the abundant hydroelectric generation in the Northwest, it should be possible to reduce the use of fossil fuels to balance the variable output from even more renewable energy projects located in the region. Better regional coordination will also reduce greenhouse gases and other air pollutants that disproportionately impact disadvantaged communities by reducing the use of nearby natural gas plants that are now cycled as the sun sets daily.
Other transmission projects in California have been built to make the grid more reliable and resilient, particularly for vulnerable load pockets that depended on aging power generation. An excellent recent example is the Trans Bay Cable, a high voltage direct current power line that goes under the San Francisco Bay to a large substation in the East Bay. Before this project was built, San Francisco and the peninsula were extremely vulnerable to grid disturbances and had to maintain highly polluting power generation in the center of the city. Completion of this project allowed for the closure of the Hunters Point and Potrero power plants in San Francisco and was a major victory for environmental justice organizations.
Transmission Costs Are Leveling Off While Renewable Generation Costs Decline
Some critics argue that regionalization will necessarily lead to vast increases in transmission construction and result in higher costs for consumers.
This need not be the case. Improved transmission system planning that goes with regionalizing the western grid can help keep transmission costs manageable because it avoids building redundant and unneeded transmission capacity. It will also create opportunities for developing renewable resources as transmission capacity is made available from coal plant retirements. A regionally operated system means better use of existing transmission and more transparency on the need for expansion. The costs of transmission can also be more fairly shared among those who benefit.
While development of the policy-driven transmission projects has led to increases in CAISO transmission rates, their completion means rate increases are tapering off and will level off as the new projects are amortized. In fact, CAISO transmission rates were flat from 2016 to 2017. Transmission in California accounts for around 10 percent of a consumer’s electric bill while power generation constitutes approximately 45 percent with the low voltage distribution system adding another 40 percent. The remainder goes to other programs authorized by state regulators.
As the costs of wind and solar generation have declined, the opportunity has opened up to site them in more locations on the transmission system. Projects can now be developed cost-effectively as energy-only projects that may be curtailed when there is congestion on transmission lines. If curtailment becomes excessive then energy storage can be added as part of an integrated transmission planning process. The CPUC, in its recently adopted Reference System Portfolio has shown that over 10,000 megawatts of additional renewable generation could be added to the regional grid without requiring new transmission projects, allowing it to meet an ambitious 2030 target for reducing greenhouse gas emissions.
A well-planned transmission system is needed to maintain electric reliability by absorbing unexpected changes in frequency and supporting adequate levels of voltage throughout the grid. Without these reliability services distributed generation and storage that are connected to the electric distribution system would not be able to function. However, that doesn’t mean that there cannot be improvements in the way transmission costs are allocated.
Reform is Needed for Transmission Charges
Currently, the CAISO uses a volumetric-only ($/MWH) approach to recover transmission costs. This approach creates economic barriers to the efficient development of distributed generation and storage as well as demand response measures and targeted energy efficiency investments because it doesn’t provide an economic signal to lower energy consumption during peak periods. Distributed energy resources that are carefully planned can be beneficial and cost-effective to the grid and defer the need for more expensive transmission investments. More importantly, they can also reduce investments in the more capital-intensive distribution system when optimally located.
The CAISO has recently acknowledged that the transmission access charge (TAC) which dates back to 2001, needs to be reformed. In June, it released a proposal for revising the way it charges load serving entities (LSEs) for transmission services. LSEs currently pay for transmission based on the the total amount of electricity used by consumers in their service area. This volumetric-only approach no longer accurately reflects cost causation, in part due to the growth of distributed energy resources. The CAISO recommends that the current structure be replaced by a hybrid approach that combines a volumetric component to capture the benefits of the transmission system benefits that accrue during most hours of the day with a peak demand component that reflects the system’s use during peak demand periods.
This hybrid approach would incentivize load serving entities like community choice aggregators, utilities and other retail service providers to reduce peak demands on the transmission system, which would avoid the need for system upgrades or new power lines to meet peak load. The CAISO set a schedule that provides multiple opportunities for stakeholders to both meet and comment on the straw proposal as it is further developed with a new proposed TAC ready for adoption by February 2019.
A Coordinated Regional Grid is Needed for Renewable Energy to Thrive
High-voltage transmission is just one piece of a highly engineered electric system that includes power generation, power distribution and, increasingly, grid-edge technologies that enable customers to better control their power consumption and production. The western grid that crosses 14 states and part of Canada and Mexico follows the laws of physics. However, decisions about which power plants are used to energize the grid is made by 38 different agencies that coordinate by phone, email and instant messaging.
The California Independent System Operator (CAISO) is the only one of those 38 agencies that uses a transparent market to determine which power plants get dispatched and which are held in reserve. The CAISO wholesale electricity market is managed through data-intensive computer programs that minute-by-minute determine what is called “security-constrained economic dispatch.” That means that the lowest-cost resources are used given the limitations of the transmission system at any point in time. Solar and wind power are now the lowest cost resources, and as we develop more of them they will be dispatched first.
Opening up the entire western grid to a competitive wholesale electricity market is a bold initiative. A regionally coordinated grid will be an important tool for evaluating future transmission needs, reducing greenhouse gas emissions and providing significant savings to consumers. It will better support renewable development throughout the electric system, both large and small scale. It will better accommodate new technologies that would be harder to integrate in less-coordinated smaller systems. California and the West need a regionalized electric system now.