15 years later: US reviews energy transmission incentives

Last update on March 16, 2020.

15 years later: US reviews energy transmission incentives

As US lawmakers debate the first major energy policy legislation since the Energy Act of 2005, leading expert Rob Gramlich of US consultancy Grid Strategies presents a webinar on advanced transmission technology incentives and how to optimise the grid.

The inevitable shift towards renewable energy has prompted a fresh focus on incentives to expand and optimise the US transmission grid, as wind and solar resources tend to be located far from population centres.

Transmission costs will make up an increasing share of customers’ bills while generation costs decline, as congestion increases and grid operators have to redispatch more expensive sources of power to ease constraints.

As lawmakers debate wide-ranging energy reforms and regulator the Federal Energy Regulatory Commission (FERC) considers whether new incentives are required to promote the use of advanced transmission technologies, Engerati invited a leading expert for his insights on how to use the existing grid more efficiently. Rob Gramlich, founder and president of consultancy Grid Strategies and executive director of Americans for a Clean Energy Grid, put forward a proposal developed under his initiative the Working for Advanced Transmission Technologies (WATT) Coalition to share the benefits of grid enhancement, which has gained traction within FERC and the industry. The Coalition’s proposal for an incentive structure is focused on small projects that provide quantifiable congestion reduction benefits. The concept is a ‘shared savings’ approach where transmission owners are allowed to keep a portion of the congestion reduction savings from the technology deployment.

Prevailing wisdom has evolved towards the view that the grid can be actively managed rather than existing as a static asset. Gramlich quotes MIT economist Dr Richard Tabors:

“In retrospect, it is apparent that ignoring transmission while introducing market reforms to other components of power systems may have been expedient but has produced a transmission system that is operated as a fixed asset; fixed in space and time.”

New technologies such as power flow control, dynamic line rating, topology optimisation and storage as transmission are past the pilot stage and waiting for wider deployment, as described in a white paper written for the WATT Coalition by the Brattle Group.

Benefits outweigh costs

Millions of dollars in savings already achieved could be magnified at scale, and the benefits greatly exceed the costs on a ratio of at least three to one, Gramlich says. But in the 15 years since the US Energy Policy Act of 2005 encouraged the deployment of transmission technologies, little has been achieved. FERC has taken comments and has held technical conferences on grid enhancing technologies, and might issue a policy statement with an invitation for proposals this spring, Gramlich says.

Jack McCall, Executive VP of Lindsey Manufacturing, said at one of the FERC workshops last year: “I see dynamic line rating as the backbone as the instrumentation and methods used properly identifies the true capacity of thermally limited transmission lines, while topology optimisation and power flow control devices provide the tools to effectively control and route power to lines that have more capacity from those that do not.”

Slow progress is partly a result of a lack of awareness and the conservative approach of system operators, but until now that has also been exacerbated by a lack of incentive structure and poor regulatory initiative. Cost of service regulation leads to a tendency to invest in capital intensive projects rather than cost-effective efficiency or technology upgrades. Gramlich points to successful policies in the UK and Australia that incentivise successful congestion management rather than infrastructure investment.

Overcoming barriers

Permitting is another major barrier to transmission expansion, as it is reviewed on a state by state basis. FERC has jurisdiction over the reliability of the bulk power system but not over what transmission gets built, including the choice, siting and construction of transmission facilities, which is a state decision. Discussion on whether to have a federal backstop continues, but the eminent domain issue is very controversial and it is hard to see that moving forward very far in the short term, Gramlich says. A lengthy legal battle followed the Energy Policy Act of 2005 over a provision to give FERC ‘backstop’ authority to weigh in on interregional transmission line siting if a state withholds approval. Ultimately a court decided in a specific case that FERC could not directly overrule a state decision using the authority given by the act.

Other suggestions to expand and optimise the grid have more chance of success, such as spreading the cost of interconnection across all generators not only the marginal unit to be connected, and greater inter-regional planning. Regional planning organisations (RTO) in the US encouraged by FERC’s Order 2000 of 1999 have brought down consumer costs by limiting congestion and facilitating expansion projects, but with hindsight, more could have been done, Gramlich says.

“The economies of scale are so significant it almost always makes sense to build it big if you’re going to build it. We’ve maxed out the capacity that was built and now we can see it would have been better if we’d built it at a higher voltage.”

A bipartisan comprehensive energy policy package The American Energy Innovation Act being debated in the Senate would spur research and development into a number of types of energy, but it may be derailed over several amendments that have been introduced this week. One sticking point is in relation to the political balance of FERC, which will soon have three Republicans and only one Democrat. Another bill introduced last year by Senator Martin Heinrich, the Interregional Transmission Improvement Act of 2019 seeks to bolster FERC’s ability to identify beneficial transmission projects across regions and Representative Deb Haaland introduced companion legislation in the House. But as it is an election year it is unlikely that major legislation will pass, Gramlich says.

ACEG is a non-profit broad-based public interest advocacy coalition focused on the need to expand, integrate, and modernise the North American high-voltage grid.

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