Delivering the Potential of Renewables

by James P. Fama

Concerns over global warming and rising energy prices are boosting interest in generating electricity from renewable energy sources. As of July 2008, 27 states and the District of Columbia have created renewable portfolio standards, which require that a certain percentage of their electricity be generated from renewables. Five other states have voluntary programs. And this past summer, Texas oil and gas executive T. Boone Pickens and former Vice President Al Gore both introduced plans to greatly expand the use of renewables for generating electricity.

America’s electric utility companies recognize the value of renewable energy sources, and we are striving to deliver their promise. The U.S. electric power industry brought almost 6,000 megawatts of new renewable energy on-line last year, with wind capacity alone expanding by more than 5,200 MW. This represents a 45 percent increase over 2006.

Last year was also a record year for solar energy, with 314 MW of new solar-powered generating capacity installed–an increase of 125 percent from 2006. Geothermal power projects under development will more than double existing geothermal capacity in the U.S., raising it from 2,936 MW to 6,300 MW. The hydroelectric industry is growing, too. In the past two years, 18 incremental hydropower projects have provided an additional 231 MW.

But renewable fuel sources produced only 8.5 percent of all the electricity generated in 2007, with hydroelectric dams accounting for about 77 percent of this total, wind 10 percent, and biomass about 8 percent. To greatly expand the use of renewables, the nation needs to address the economic, regulatory, and most of all, the transmission siting issues that are hindering their growth.

With the exception of wind energy in some parts of the country, renewable energy typically costs more than electricity generated from traditional energy sources. As a result, the growth of renewables has mainly been driven by policy decisions and associated incentives in the form of state renewable portfolio standards, the federal production tax credit (PTC), the solar investment tax credit (ITC), and other financial incentives.

Both the PTC and the ITC are due to expire at the end of the year. We are working with Congress and a long list of allies to get them extended. We also believe the utility exclusion for the solar ITC should be eliminated.

Integrating and interconnecting renewable energy resources reliably and cost-effectively presents other issues. Renewables can be located far from existing transmission facilities. Their output can also be variable, which can raise reliability concerns. As a result, siting and building transmission facilities to support renewable resources is often more difficult and takes significantly longer than the siting and building of the renewable resources themselves.

In many cases, state siting laws do not specifically allow for the consideration of regional benefits of new transmission lines. If states are able to consider only intrastate benefits and not regional benefits, they may have little choice under state law but to reject the proposed line, even if the benefits to the region are significant.

Besides the delays in gaining regulatory approvals, transmission expansion is also highly vulnerable to public sentiment against building any infrastructure projects, especially when a new transmission line must be built through an area where residents believe the benefits of the new line will accrue to another area and not theirs. This can put tremendous pressure on states to reject the line.

To address these and other siting issues, the Energy Policy Act of 2005 (EPAct 2005) authorized the U.S. Department of Energy to designate National Interest Electric Transmission Corridors. A corridor is a geographic area where congestion in the electricity grid is raising the cost of electricity to consumers or jeopardizing reliable service, and for which resolution is in the national interest. If states within a designated corridor lack authority to act, or have failed to act in a timely manner to resolve congestion issues, then the Federal Energy Regulatory Commission can issue permits to site transmission projects in the corridor.

Recently, this federal authority has come under attack from a variety of opponents. But overturning the siting provisions will make it more difficult to integrate renewable resources into the nation’s grid. The lengthy delays that characterize the existing siting process also become problematic because such delays add significantly to the overall construction cost of a project, as well as to the cost of electricity itself, because it costs more to transmit power along congested transmission lines. These costs will be born ultimately by the consumer. Finally, the delays in siting needed transmission can create reliability problems such as voltage reductions, brownouts or rolling blackouts. For all of these reasons we are urging Congress to continue to support the siting provisions in EPAct 2005.

Renewable energy sources hold great potential for the nation’s electricity future, but they bring great developmental challenges as well. To overcome them will take a renewed commitment by the public, regulators and policymakers. EEI and its members will continue working to see that commitment through.

Author

James P. Fama joined the Edison Electric Institute in April 2002 as executive director, Energy Delivery. The Energy Delivery group is responsible for supporting the association and its members on all business, regulatory, operational, reliability and public policy matters related to energy delivery, including transmission-related matters, before the Federal Energy Regulatory Commission.

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