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Transmission's True Value

Adding up the benefits of infrastructure investments.

Fortnightly Magazine - February 2012

integration of wind generation in locations with a 40 percent average annual capacity factor reduce the investment cost of wind generation by one quarter compared to the investment requirements of wind generation in locations with a 30 percent capacity factor. 16 Transmission investments also might allow the development of generation with lower fuel costs— e.g., mine-mouth coal plants or natural gas plants built in locations that offer higher operating efficiencies; better access to valuable unique resources— e.g., hydroelectric or pumped storage options; or lower environmental costs— e.g., better carbon sequestration and storage options. Similarly, a robust transmission network provides additional resource planning flexibility in addressing unexpected shifts in fuel costs, changes in public policy objectives, or uncertainties in the location and amount of future generation additions and retirements. 17 This also includes optionality and flexibility in terms of leveraging lowest-cost supply and demand-side resources in the future.

Additional generation capacity investment savings also are provided by reducing losses during peak load and, through added transfer capabilities, the diversification of renewable generation. Recent studies show that peak-loss-related capacity benefits can add 5 percent to 10 percent to estimated production cost savings. 18 The Eastern Wind Integration and Transmission Study (EWITS) showed that regional transmission overlays can increase the capacity value of wind generation by roughly 5 percentage points—from an average of 23 percent without regional transmission upgrades to 28 percent with regional upgrades. 19 Similarly, regional overlays can diversify the geographic footprint of intermittent renewables and balancing generation resources, which leads to lower renewable balancing costs. If we conservatively assume that the renewable generation balancing benefit of an expanded regional grid reduces balancing costs by only $1/MWh of wind generation, to a range of $3 to $5 per MWh, 20 nationwide annual savings would exceed $250 million for 100,000 MW of wind generation at 30 percent capacity factor.

Added regional transfer capacity also can allow reductions in local reserve margin requirements while maintaining reliability standards. For example, the Public Service Commission of Wisconsin found that “the addition of new transmission capacity strengthening Wisconsin’s interstate connections” was one of three factors that allowed it to reduce the planning reserve margin requirements of Wisconsin utilities from 18 percent to 14.5 percent. 21

Finally, individual transmission projects can provide significant investment cost benefits through synergies with other facilities, or by reducing the cost of future transmission projects. While projects might be proposed to reduce congestion or integrate renewable generation, they also might avoid, delay, or reduce the cost of future reliability and other transmission projects. For example, the California ISO found that its renewable integration-driven transmission project in the Tehachapi region of southern California also allowed the low-cost upgrade of a congested transmission path—Path 26—and provided additional options for future transmission expansions. 22 The sizing and configuration of projects built today also can create valuable options that allow for more flexible and lower-cost transmission expansion in the future.

Economy-Wide Benefits

Transmission investments often create economy-wide benefits beyond reducing the delivered wholesale cost of power. First, these benefits include impacts on fuel markets, through reduced fuel prices.