transmission capacity continues to decline

Eric Hirst, contributing writer

Transmission lines, substations, circuit breakers, capacitors and other equipment provide more than just a highway to deliver energy and power from generating units to distribution systems. Transmission systems both complement and substitute for generation. Transmission generally enhances reliability; lowers the cost of electricity delivered to consumers; limits the ability of generators to exercise market power; and provides flexibility to protect against uncertainties about future fuel prices, load growth, generator construction and other factors affecting the electric system.

Because most of the U.S. transmission grid was constructed by vertically integrated utilities before the 1990s, these legacy systems support only limited amounts of inter—regional power flows and transactions. Thus, existing systems cannot fully support all of society’s goals for a modern electric—power system.

The “U.S. Transmission Capacity: Present Status and Future Prospects” report, sponsored by the Edison Electric Institute (EEI) and the U.S. Department of Energy (through Lawrence Berkeley National Laboratory), uses regional and national data on transmission capacity plus transmission plans from a variety of sources. It examines the current status of the U.S. transmission system and looks at plans to expand transmission capacity over the next decade.

let’s look at the numbers

The data show a continuation of past trends. Specifically, transmission capacity is being added at a much slower rate than consumer demand is growing. Between 1982 and 1992, transmission capacity per MW of peak demand declined at an average rate of 0.9 percent per year. During the following decade, capacity declined even more rapidly, at 2.1 percent per year. Projections suggest that this decline will continue, but at a slower rate during the coming decade, by 1.1 percent per year from 2002 through 2012 (see figure one).

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EEI—collected data on annual investments in transmission facilities for investor—owned utilities show a steady decline in construction of new transmission facilities from 1975 through 1999, with substantial increases during the next four years (2000 through 2003). Between 1975 and 1999, investment fell at an average rate of $83 million per year; from 1999 through 2003, transmission investment increased at an average annual rate of $286 million, a substantial reversal of trends (see figure 2). The average level of investment for the last four years was $3.6 billion, 34 percent higher than the average for the prior four years ($2.7 billion). It is not clear what accounted for this reversal of trends or whether the change is temporary or long—term.

A review of 20 transmission plans and related documents shows enormous variability in the topics covered and the comprehensive scope and quality of the reports. Roughly half the studies focused on reliability, while the other half focused on economics (reducing congestion to lower the cost of power delivered to consumers). Few reports addressed all the reasons for adding transmission capacity to a system: meet reliability requirements, lower costs to consumers, interconnect new generation and load, replace old or obsolete equipment and, in some cases, improve local air quality. In addition to substantial differences among the reports, many transmission owners and regional reliability councils do not publish transmission plans at all. Thus, the geographical coverage of this study is spotty and limited.

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Most of the recent and planned investment in transmission facilities is intended to solve local reliability problems and serve growing loads in large population centers. Few projects cross utility or regional boundaries and are planned to move large blocks of low—cost power long distances to support large regional wholesale electricity markets. Thus, many opportunities to lower consumer power costs will be forgone because of insufficient transmission capacity.

money talks

How much should we invest in the U.S. transmission grid to meet the needs of our growing economy? Estimates range from $27 billion over the next several years to $50 or $100 billion during this decade. Although this question sounds reasonable, answering it appropriately is fraught with difficulties. Many issues complicate development of a responsible answer:

“- size and shape of load. How do population and economic growth, combined with changing technologies, affect growth in electricity use (MWh) and demand (MW)?

“- location of generating stations. How does the spatial distribution of generation (addition of new units minus retirement of old units) change over time? In particular, are new units primarily built near load centers or in remote locations (e.g., wind— and coal—fired stations)? What is the relationship between the locations of generating units and the topology of the transmission network?

“- the importance, as a policy matter, of robust wholesale electricity markets. More transmission will be needed, all else equal, if national policy favors large regional markets for electricity [as does the Federal Energy Regulatory Commission (FERC) through its initiatives promoting regional transmission organizations and standard market design]. On the other hand, if we return to the days of regulated, vertically—integrated utilities that trade primarily with their close neighbors, less new transmission will be required.

“- magnitude of production—cost differences among power plants. Large spatial and temporal differences in production costs provide strong economic motivation to build transmission lines to permit the movement of cheap power from generators to load centers.

“- level of bulk—power reliability we want and are willing to pay for. Greater reliability will likely require additional investments in transmission, generation and demand management as well as in improved system control and operations.

“- amount of additional capacity that can be wrung out of today’s transmission system. The application of existing and new computing, communications, and control technologies could enhance reliability and permit more transactions to flow across the grid. Other solid—state technologies enhance the ability of the grid to respond rapidly to changes in power flows and voltages to improve stability and voltage control. Better operations permit system operators to run the grid closer to its physical limits without imperiling reliability.

“- use of non—transmission solutions (i.e., suitably located generation and demand—management programs) to transmission problems. More generally, will economic signals [especially, locational marginal prices (LMPs) and congestion revenue rights (CRRs), key elements of FERC’s standard market design] stimulate the construction of generating units and the creation of demand—management programs at locations that reduce congestion? Will these economic signals motivate construction of appropriately located merchant transmission projects?

As an example of how different answers to these questions might affect the amounts, types and locations of transmission investment, consider the needs for reliability and economic efficiency. More broadly, new transmission can be built for different purposes, including:

“- interconnection of new load or generation. Facilities required to connect to the transmission grid, but not necessarily to transport power across the grid.

“- reliability. Facilities required to meet NERC, regional reliability council and other standards, primarily the NERC (1997) Planning Standards.

“- economics. Facilities that lower the cost of electricity production by reducing losses and congestion to permit greater use of low—cost generators to serve distant load centers.

“- replacement. Facilities that replace old, worn—out and/or obsolete equipment.

The amount of money needed for transmission investment will depend on which categories are considered.

Hirst is a consultant specializing in electric industry restructuring. The full text of his report can be found at www.EHirst.com.

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