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Green Gridworks

Case studies on integrating renewable resources.

Fortnightly Magazine - February 2012

transmission build-out is easier to accomplish in power markets that are under the jurisdiction of a single state. Multi-state market areas have to deal with many difficult challenges, e.g., inconsistent state policies, transmission cost allocation, local siting opposition, and free riders, unless the wind resources and the delivery points happen to be located in the same state or are sufficiently coordinated regionally.

These examples also demonstrate that coordination of wind development and transmission build-out, i.e., project-on-project risk, is a key issue. Renewable generators won’t invest without an assured delivery pathway, and regulators are reluctant to approve transmission cost recovery without sufficient assurances from generators. This issue is compounded by the long lead times and high development cost for both.

The Texas solution is to establish different classes of transmission upgrades and to require wind generators to make sufficient commitments—in terms of capacity that’s built, is under construction, has signed interconnection agreements, or has provided collateral—before a CCN application can be processed. In California, the CPUC approved a backstop provision for retail rate recovery and CAISO established two categories of transmission upgrades to facilitate wind integration. Even in California, however, the multiple balancing authority areas create additional risks when costs are incurred in one area for the benefit of another. Inter-regional agreements as envisaged in FERC Order 1000 could mitigate some of these risks. In Hawaii, inter-island wind transmission makes economic sense but the project-on-project risk issue hasn’t yet been resolved.

Additionally, experience has shown that actual transmission costs are very likely to exceed original planning-level estimates. In some cases, such as Texas, the increase can be significant. Developing massive transmission infrastructure to deliver remote wind energy can be done in stages to minimize planning, construction, and cost recovery problems.

Major transmission build-out to accommodate wind development might require special legislation and tariff modifications to assure cost recovery and address other risk issues. CREZ legislation in Texas designated the PUCT as the lead state agency in charge of locating the regions where wind farms would be sited and awarding transmission contracts to 11 utility companies to interconnect the wind farms. California law allows investor-owned utilities to recover transmission costs for approved projects if those costs can’t be recovered from FERC-approved wholesale transmission rates. Hawaii hasn’t yet resolved this issue in spite of its aggressive RPS standards.

Experiences in Texas, California, and Hawaii suggest that integrating large scale renewable resources into the transmission grid is a challenging but achievable endeavor. It requires thoughtful strategy and coordination on the part of policymakers, utilities, and generators—particularly with regard to risk issues. Whether or not renewable resource goals are achieved in the most effective manner ultimately depends on policy leadership and how efficiently conflicting interests are resolved.

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