“If we have national carbon standards and policies in
place, then we can decarbonize our electric system
efficiently in the years ahead by implementing a set of
simple guidelines. The desire for master planning is
appealing, as long as it’s master planning and not a
Master Plan.”

The Massachusetts DOER (Department of Energy Resources) commissioned a study by the Analysis Group about possibilities and suggestions for an offshore transmission network.  The report was based off of the Draft Ocean Energy Management Plan that MA has been developing, and includes a number of different suggestions of how to develop the infrastructure necessary to facilitate the development of Offshore Wind in the next 10 to 15 years in order to meet MA’s RPS goals.

To download the full report, go to: http://www.analysisgroup.com/article.aspx?id=9372

Image from “Strategic Options for Investment in Transmission in Support of Offshore Wind Development in Massachusetts”, The Analysis Group, December 2009

September 30, 2009

Electricity Transmission Policy for America: Enabling a Smart Grid, End-to-End

I must begin with a disclaimer.  In making these remarks, I am expressing my personal views and opinions, which do not necessarily reflect the views of any organization with which I am affiliated.  It is a pleasure for me to have this opportunity to present my views about what I believe to be the most important issue facing America’s electric power industry – the need for changes to public policies governing our high voltage electric transmission grids or networks in order to accelerate innovation and progress towards a smart grid, end-to-end. 

First, I will summarize the context in which electric transmission is embedded.  Thereafter, I will discuss my proposals for policy reform.

Context

America’s electric power industry is highly fragmented.  Ownership is divided among more than 3,100 separate entities.  Investor owned utilities account for 7% of total entities, and they serve 73% of total customers.  Publicly and cooperatively owned utilities constitute 93% of the total entities, and they serve 27% of total customers.  Within the investor owned sector, consolidation has been underway.

America’s electric power industry, in the aggregate, has a stable revenue base of $250+ billion per year, and a large asset base of $800+ billion. The industry is generally not over-levered. Of the electric power industry’s total asset base, power generation accounts for 60%, distribution for 30%, and high voltage transmission for 10%.

America’s high voltage transmission system consists of more than 167,000 miles of lines, 230 kV and higher.  Investor-owned utilities own 66% of this total transmission line miles, while a variety of public entities own 30%, and independent transmission companies own 4%. 

Responsibility for operating America’s transmission networks is dispersed among different business models that coexist under the Federal Energy Regulatory (FERC) open access transmission regime established by Order 888 in 1996 and revised by Order 890 in 2007.  Although they do not own transmission facilities, nonprofit independent system operators (ISOs), which are regulated by FERC, manage competitive wholesale power markets, provide open access transmission services, and assure compliance with mandatory transmission reliability standards for their defined control areas, or “balancing authorities.”   The regions covered by independent system operators include the Northeast, mid-Atlantic, Middle West, the South Central U.S., Texas and most of California.  These regions include mainly states where electric industry restructuring, including utility divestment of generation, was carried out in the 1990s and early 2000s.  About 2/3 of America’s electric consumers are served by utilities which participate in wholesale power markets managed by ISO’s and in transmission planning led by ISO’s.  Utilities serving the remaining 1/3 of America’s electricity consumers in the Northwest, Southwest, and Southeast avoided state restructuring.  They are outside ISO coverage and lack organized wholesale markets. 

As a result of uncertainties surrounding the nature and extent of utility restructuring, annual investment in transmission declined by 50%, from $6+ billion in 1980 to $3+ billion in the late 1990s.  Spurred by the worst electric system failure in American history, the Northeast blackout in 2003, investment in transmission increased to almost $8 billion in 2007.  Investment at high levels in transmission must be sustained to assure reliability of service is maintained or enhanced, and line losses and congestion are reduced, even as customer electric loads increase. 

A major motivation for concern about America’s electric transmission grid is the need for rapid development of renewable energy resources –  wind, solar, and geothermal primarily — to meet future needs for electric power in a carbon free manner.  While America is rich in these resources, they are location constrained and the best locations for development are generally far from urban electric load centers.  Even without a federal renewable energy standard, utilities are struggling to meet such mandatory standards in 26 states.  Development and construction of high voltage transmission, AC, DC, or a combination, requires 7 to 10 years, whereas development and construction of a wind or solar resource takes 3 to 5 years. 

The costs of the multi-state transmission projects necessary for America’s renewable resources to be fully developed will be very large. For example, the Green Power Express is a proposed 765 kV network that would span 3,000 miles in order to deliver 12,000 MW of wind energy from the Dakotas, Minnesota and Iowa to load centers in Chicago, Minneapolis and southeast Wisconsin. The project would cost an estimated $10-12 billion. The owner would be ITC Holdings Corp, an independent Transco. PG&E has proposed a 1,000 mile transmission line that would bring 3,000 MW of new renewable power from British Columbia to northern California. It would cost $3.2 billion.  And CAISO has developed a conceptual plan for achieving California’s 33% RPS goal in 2020. The transmission required to implement the plan would cost an estimated $6 billion.

More recently, an interregional planning effort in the Eastern Interconnection has evaluated conceptual transmission plans to support access to wind resources that cross the territories of PJM, Midwest ISO, Southwest Power Pool, and other Midwestern and Southern utilities. The analysis suggests that achieving a 20 percent renewable portfolio standard with wind resources across the Eastern Interconnection would require an investment of $80 billion in transmission. 

To conclude my summary of the electric transmission context, my last topic is public policy.

Public policy oversight of America’s electric power industry is a hodgepodge, rooted in the federalism concept of 50 state laboratories.  Federal authority frequently overlaps the states.  Nevertheless, diverse state regulatory policies dominate regarding the most important policy subjects, such as electric industry structure, generation adequacy, energy resource mix including the fraction of renewable energy, transmission siting and cost recovery, and, of primary importance, retail electricity prices.  On the other hand, federal regulatory policies govern wholesale power market design and prices, and, since 2005, electric system reliability standards. 

Several energy/climate bills are pending before the United States Congress which contain specific provisions affecting electric transmission.  Any federal legislation focused on transmission will modify, more or less, the existing hodge podge of federal, state, and local laws and regulations affecting electric transmission, and related components of the electric power industry.

Recommendations

With the context I have summarized in mind, I will now outline my recommendations for public policy change.  My recommendations generally take the form of federal legislation not because I prefer federal intrusion into what are currently state prerogatives.  Rather it is because I believe strengthened guidance and coordination by the federal government is indispensable in light of the interstate and multistate character of the electric transmission issues which must be addressed.  My recommendations relate to transmission planning and siting, transmission cost recovery and allocation, grid modernization, smart grid development and deployment, and independent system operator coverage. 

Regarding transmission planning and siting:  First, Congress should clarify that FERC’s high voltage transmission planning authority applies to all electric transmission owners, operators, and developers — whether investor or public, and to local, state, and federal agencies with transmission planning responsibilities.  Second, Congress should direct that FERC’s planning authority applies to all high voltage transmission projects that are interstate or that affect interstate commerce.  Third, Congress should authorize FERC to designate one or more regional transmission planning entities within both the Eastern and Western Interconnections.  Fourth, Congress should empower regional planning entities, in consultation with industry, government agencies, and nongovernmental stakeholders to develop regional transmission plans.  Regional plans would be based on economic and environmental analyses of alternatives including alternatives to transmission.  Regional plans would assess and incorporate, as appropriate, available plans developed by state entities and independent system operators. Plans would include an approved list of specific projects, including approved routes and project cost estimates.  Fifth, Congress should authorize FERC to establish defined time lines for the completion of regional transmission planning results for FERC review and approval. And sixth, Congress should provide that FERC approval of proposed projects included in regional plans has conclusive effects in other governmental agency proceedings. 

In other words, regional planning entities must not become an additional layer of bureaucracy.  Their processes should be inclusive, but disciplined.  Regional transmission planning should be planning with consequences, the ultimate consequence being construction of necessary transmission.   

Regarding transmission cost recovery and allocation, Congress should direct FERC to determine cost recovery for future high voltage interstate electric transmission projects and such projects affecting interstate commerce, and clearly direct that FERC’s cost recovery decisions take precedence over any state cost recovery determinations.  In legislation, Congress may also include cost allocation guidance for high voltage transmission projects. With or without statutory guidance, however, FERC should conduct a rulemaking proceeding with the aim of developing cost allocation principles appropriate for a variety of different circumstances.  In the absence of a legislative mandate, in order to meet the requirements of the 7^th Circuit U.S. Court of Appeals decision in Illinois Commerce Commission v. FERC, August 6, 2009, the record of FERC’s rulemaking must include an “articulable and plausible reason,” and “substantial evidence on the record” for every cost allocation principle FERC approves.  A key factor to consider during FERC rulemaking should be that a cost allocation method, if applied to an otherwise meritorious project, should result in a project that can attract financing.

Regarding transmission grid modernization, the U.S. Department of Energy (DOE) should, in cooperation with the North American Electric Reliability Corporation and the Electric Power Research Institute, develop and guide implementation of a national innovation strategy for America’s electric transmission grids. The strategy should result in specific plans for all transmission owners to incorporate, within a defined period of years, “best available, cost effective” technologies that will improve the operating performance of their existing and planned transmission facilities.

Next, regarding smart grid, led by DOE, and approved by FERC, federal smart grid standards to assure interoperability and security must be developed and implemented nationwide.  In parallel with national standards development, transmission system operators should develop and demonstrate, with utilities and their customers, demonstration demand response programs, enabling utility customers to participate in wholesale power markets, selling “negawatts” during peak demand periods, and also ancillary services at other times.  Demonstration projects involving distributed power generating systems and energy storage should be deployed on utility customer premises and within utility distribution networks.  Transmission system operators must be full partners in these demonstrations.  Such programs would, of course, be accompanied by utility implementation of advanced metering infrastructure enabling two-way interactions between customers and the grid operator. Guided by results of demonstration programs, state regulatory agencies should approve rules and rate designs, appropriate for wide-scale deployments and operations of smart grid applications throughout distribution utility service territories.

Finally, regarding independent system operator coverage, Congress should direct FERC, in consultation with transmission owners, affected utilities and state regulatory agencies, to develop and implement a plan to expand the coverage of organized wholesale power markets to cover the northwest, southwest and southeast United States, which do not already have such coverage.  Congress should also mandate establishment of independent system operators for the affected transmission grids.  In conjunction with developing this plan, FERC should consider whether the number of balancing authorities, which are currently more than 130, should be reduced.  Legislation should provide a 3-year transition period for these changes to occur.

My recommendation to expand organized wholesale market and ISO coverage to the entire country may be strongly resisted by entrenched and politically powerful interests.  One such interest group consists of investor owned utilities which have successfully maintained a regulated electric utility monopoly which integrates generation, transmission and distribution functions, even though generation is no longer a natural monopoly, if it ever was, and the largest share of America’s power generation capacity, 47%,  is now owned by independent power producers.  A second powerful interest group is publicly owned utilities, many of which strongly resist any erosion of their operating control over the transmission facilities they own.  In response to their claim of “if it ain’t broke, don’t fix it,” I respectfully suggest my recommendation, if implemented, would have a “win-win” effect for them and for America’s consumers of electricity and for America’s capacity to play a leading role in coping with global climate change.

Why?  Although America does not yet have national energy and climate policies, the way forward is clear.  America’s security as a nation, and our capacity to form and lead a coalition of the willing to avoid global climate catastrophe, require successful implementation of a national strategy to replace our current reliance on green house gas emitting fossil fuels with reliance on carbon-free energy sources or fossil fuels incorporating carbon capture and sequestration technology.  America’s electric power industry can and should play the leading role in implementing such a national strategy by expanding use of renewable energy, nuclear energy and coal with carbon capture and sequestration technology for power generation, and by enabling consumer’s to implement energy efficiency, distributed generation and demand response programs, and by enabling electrification of automotive transportation.  Wind and solar are variable sources of renewable energy.  Organized wholesale power markets which independent system operators manage can have the geographic scope and sophisticated capabilities which are required to integrate large amounts of variable energy sources into a system that balances power supplies precisely and continuously against consumer loads over large regions, 24 by 7 by 365.  Such power markets and operators are also required to arm consumers with the information they need to optimize their electricity consumption, including integration with wholesale markets upstream.  Therefore, if integrated electric utilities, whether investor or publicly owned, were to cede operating authority over their high voltage transmission facilities to nonprofit independent system operators, they will help America’s electric power industry as a whole move forward.  Of course, such a result might be achieved voluntarily over a couple of decades.  History tells me, however, that federal guidance now is critical.

America’s electric power industry can and should, through accelerating innovation, lead the transition to a secure and environmentally sustainable energy future for our nation.  The high voltage transmission grid is poised to become the leading edge of that fundamental transition.  The proposals I have suggested for transmission policy legislation and regulatory reform would, I believe, enable our electric transmission grid to play that strategic role.  It is up to our Congress to act — soon.

These remarks are based on my paper, published with the same title by MIT’s Industrial Performance Center.  The complete paper may be downloaded at URL:           http://web.mit.edu/ipc/research/energy/pdf/EIP_09-003.pdf.

http://www.nrri2.org/index.php?option=com_content&task=view&id=203&Itemid=38

“One of the most promising players to watch in the space is Viridity Energy, provider of a technology platform that allows microgrids to run demand response programs — rerouting and rebalancing power loads to decrease disruptions and maintain grid health while paying consumers for the energy that they conserve. Viridity CEO Audrey Zibelman, formerly COO at PJM Interconnect, one of the largest grid management companies in the world, will be featured at GreenBeat 2009, VentureBeat’s seminal executive conference on the Smart Grid.”

Full article: http://green.venturebeat.com/2009/10/29/microgrids-a-21b-market-in-the-making/

Eric Lindeman

http://www.theenergydaily.com/ced/people/executive_q_and_a/Competition-Innovation-Incremental-Projects-Are-Keys-To-Transmission-For-Renewables_3233.html

Click Here to read the full article: http://www.nytimes.com/cwire/2009/10/01/01climatewire-us-prepares-more-regulatory-moves-in-case-cl-90466.html

In many parts of the United States, renewable electricity development is either stuck or going along at a snail’s pace because the transmission needed to get large-scale wind and solar energy to market is not getting built. When even as resourceful a man as Boone Pickens says he’s going to have to store his wind turbines in his garage because of transmission constraints (and that IS in Texas, of all places), we know we’re in trouble.

Almost everywhere, building transmission projects to connect renewables to the Grid is the issue. The Waxman-Markey bill that passed the House in May, and draft legislation from the Senate, constitute the first meaningful legislative solution in years. We expect a Bill out of Washington by the end of the year that creates a national Renewable Portfolio Standard of 15 to 20 percent of national electricity supply. This federal legislation essentially consolidates renewable requirement that New England has adopted in recent years.

Now, we need to figure out how to execute transmission projects that bring large renewable energy to market. This is a huge challenge for the transmission community, requiring unprecedented innovation and entrepreneurial activity in a sector that has traditionally demonstrated little of either.

Anbaric is an independent member of the transmission and renewables communities. We believe it falls to those of us in the transmission business today to figure out a reasonable way forward.

In New England, it seems to us that a practical way forward is to organize one or more “renewables coalitions” to build transmission to connect the desired renewables to the Grid.  We’re not the only ones who have had this idea. In the last few years several coalition dialogues have emerged:

1. We have had coalition conversations around two projects: a “Green Line” to connect northern Maine and the Canadian Maritimes to Boston (and potentially Cape Cod), and a “Champlain Wind Link” to connect northern New York to Vermont and points south. Participants (who shall remain nameless in our Blog… but they know who they are) in our conversations include New England utilities, wind developers in Maine, New Hampshire, and New York, and other transmission developers. Our two projects would bring from 1400 to 2200MW of wind-oriented energy to southern New England. That’s enough connectivity to meet New England’s own renewables targets from 2013 to 2020.
2. Northeast Utilities and NStar have had coalition conversations with Hydro Québec. Their project would bring Canadian hydro-oriented energy into southern New Hampshire. This is also a commendable project, although large-scale hydro does not qualify as a “renewable.”

Other utilities have had other coalition discussions that we know less about, but none of the transmission (and therefore large-scale renewable) projects have reached the execution stage because all of them appear to lack – so far – the critical ingredient for success: a bankable, long-term contract with utilities and other consumers. 

The appearance this year of potential assistance from the federal government (largely in the form of loan guarantees) has so far only slowed down the process. It took DOE six months to issue its guidelines for applying for the guarantees. The requests had to be submitted in September. We did submit a request for guarantees for one of our projects (which ought to be a poster child for what the Department and the Administration are interested in). But there’s a big problem with the DOE program: to get the loan guarantee, a project has to be under construction by September 2011. Most major transmission projects require extensive environmental reviews that take – guess what – more than two years to complete. So, as the Wall Street Journal has reported, most large utilities and their projects have decided not to apply for federal assistance! (Power Companies Shy From Transmission Loan Guarantees, WSJ, September 17, 2009)

If a transmission project for renewables spans more than one state (and most do) or is offshore (and many large new projects will be), an already-difficult task is even harder. Transmission development is overseen by a complicated amalgam of regulatory agencies that operate at local, state and federal levels. Local and state requirements are very different, and even federal rules change a lot over time. As a result, efforts to bring renewables to market have been plagued by substantial regulatory delays. The Cape Wind project off the coast of Massachusetts is emblematic of this difficulty; it has been in development for more than a decade.

From California to Massachusetts, governments are very good at imposing renewable energy requirements, but (with few exceptions) find it difficult to promulgate effective rules, regulations, and contracts that enable those requirements to be met. 

How about carbon? A few months ago, I met with a very senior federal official who asked me if the proposed carbon rules in the Waxman-Markey bill would lead to a wave of new transmission investment. I said no, given that these rules give out huge carbon allowances to coal-burning utilities, that the Administration’s carbon cap-and-trade proposal only makes the obvious more obscure (we have absolutely no idea when carbon will have a bankable value), and that a simple carbon tax is not “on the table.”  From the standpoint of renewable energy and transmission development, all the carbon debate has done so far is to assure that nothing gets built. Even if carbon cap and trade does pass this fall, it provides little if any support for renewable and transmission development.

Learning from Europe’s Experiences

I went to Europe in early September –specifically to Sweden, Denmark and England  — to see how Europe is developing its big wind projects.  At the end of 2008, the Europeans had already developed about 63,500 MW of onshore wind (compared with about 25,300 MW in the United States). They have found, by and large, that they need to move their wind development offshore because it quickly becomes harder and harder to develop extremely large (500MW + ) projects onshore, and to develop the terrestrial transmission to take that energy to market.

I believe we have a similar situation in the United States. I don’t believe the United States can or should build 200,000MW or more of wind in the Midwest, and expect to move it to the East and West Coasts via electricity superhighways. The Midwest wind can be pushed to, say, Chicago in the East and, say, Denver or perhaps Salt Lake City in the West. But the coastal states will, by and large, take care of their needs via projects that are closer. In fact, the New England Governors just issued a Blueprint (see http://www.nescoe.com/Economic_Study.html), which essentially says New England will build out its own considerable onshore wind resources, and then develop offshore wind farms. That strategy will also be pursued by New York, New Jersey, Delaware, Maryland and some of the southern states as well.

So, how are the coastal states going to execute these projects?

If we look to Europe for examples, the answer, in a nutshell, is via coalitions that become financing vehicles. In other words, utilities and large consumers with renewables deficits create buying consortia, team up with transmission developers to buy the product. In some states, the utilities will be allowed to own a piece of the transmission and the wind project; in other states, they will not. It’s the credit-worthy contract from the utilities, overseen by state and federal regulators that will get the projects financed.

This is true onshore, but it’s even truer offshore. People are going to find out that connecting a bunch of wind projects to shore is exceptionally complicated, and only a few entities have the complete set of skills needed to do it right. And it requires doing it right from the start… letting the typical development teams run with the ball for two or three years simply will not work. But letting utilities do it all won’t work either, especially in the Northeast, where the states are suspicious about transmission expansions that are being proposed using the same procedures that appear to go over budget and behind schedule far more often than not

The European offshore wind industry is being created by consortia consisting of competent execution and finance people on the one hand, and customers on the other. The load-serving parts of the utilities are in the deal from the beginning. This obviously lowers development risk, albeit at the cost of complicating governance and ownership.

We at Anbaric are committed to participating in such consortia, where the underlying projects make sense. We’re less interested in participating in efforts to create “master plans” (there is one, for example, that contemplates spending $20+ billion to build a “high voltage transmission ring around New England” which makes no sense to us). We are committed to finding and developing the renewables that constitute “low hanging fruit” and can be developed with incremental, affordable, and environmentally acceptable transmission projects.

Transmission Development: the Tie that Binds

As an independent transmission company, Anbaric naturally believes that the transmission sector – like generation and retail services – should be as competitive as possible. In our view of how the world should work, transmission is the strategic piece between renewables and consumers. Transmission is the key to successful execution of large-scale renewables projects, especially offshore.

Europe shows us three different models for executing the critical transmission component of offshore wind:

1. In some places (the United Kingdom) the government is forcing independent transmission companies (Transcos) into the mix. This model is designed to incubate a highly competitive offshore Transco sector for the United Kingdom. Some US States are likely to implement a similar model.
2. In other places, like Denmark, the incumbent utility is responsible for connecting offshore wind to the on-shore Grid. The Danes are way ahead of the rest of the world in making these connections, but they have a transmission monopoly and we (the US) are not likely to follow their lead entirely. Some US utilities, however, will try to extend their “service territory” to the offshore regions. How well this works in the United States depends on how good the incumbent transmission company is: some are excellent at building transmission, and some are not.
3. In yet other places, the wind developer has to figure out a way to connect to the Grid. In some areas, where more than one offshore project tries to connect to a “sweet spot” in the onshore Grid, it will cost hundreds of millions of dollars to beef up the Grid to accommodate the wind. Our current interconnection rules and regulations are terrible at providing offshore wind with affordable connections. We at Anbaric have some ideas on how to fix that.

In New England, the stage is set for moving ahead. The Governors of New England have issued the call: develop New England’s renewable resources. Common sense indicates we develop affordable onshore wind first, then offshore wind.

 Competing consortia have emerged that seek contractual support for the first wave of onshore transmission and renewables development. What will it be: hydro from Quebec, or wind from Maine and New York, or both?  Once that decision is made, we can begin to pave the way for the intelligent development of the offshore resources.

Execution requires long-term commitments via power purchase agreements. The critical purchasing power is in the hands of the utilities; but the utilities, in turn, are in the hands of their regulators.  Ideally, the New England states would procure renewables together, but if that is not in our grasp, the individual states should embark – now – on the process of soliciting the first round of competitive, large-scale renewables, delivered to where they are needed.

Here are some more photos from our trip.