Letter to the Editor

Fortnightly Magazine - February 2006

To the Editor:

While transmission built to “compete” with generation capacity is an interesting notion, it generally misses the real value of transmission (see “PJM’s New Game,” by Bruce W. Radford, December 2005, p. 26).

One of high-voltage transmission’s greatest attributes today is to move low-cost generation (whatever fuel it happens to be from). Generators, for the most part, produce power with only one fuel, so generation is a poor substitute for more robust transmission to move affordable energy to load. Transmission, on the other hand, is fuel neutral.

In today’s high energy-price world, delivering “affordable” energy to consumers is very important. We, in the United States, are paying upward of $350 billion more today for natural gas, oil, and electricity than we did in 1999. Putting a small percentage of that cost back into the grid (on top of the standard investment over the last several years) would pay huge dividends in reducing natural gas demand and therefore prices. It can be argued at today’s gas prices that there is far more value in moving extra low-cost (generally coal) megawatts east and south during off-peak hours to displace gas generation of more than 4,000 hours a year.

I believe we need higher standards in the electricity market similar to transportation, where we value reliability and affordability (time). We all agree the bridges should not collapse on the interstate, which is similar to the reliability argument about few outages. We also agree to a higher standard, that it should not take 5 hours to cross, for example, the Mississippi River on the interstates, which would seriously damage commerce in the United States (i.e., the affordability concept). Using this similar line of thinking, we should be able to move excess coal generation out of the middle United States to the East and the South and displace gas generation to the benefit of all customers in that region (low fuel costs or purchase-power cost or lower wholesale market prices).

Transmission is far more valuable than just a generation capacity alternative. The bigger U.S. electricity (and energy) problem in the United States is moving the affordable energy all hours of the year. Selective enhancements to the grid, especially in the eastern United States, will pay for themselves in a very short time frame when displacing $10 to $15/MMBtu gas. If high-voltage upgrades were strategically made to the grid, especially in the East, the excess coal generation in the off-peak could displace almost 1 Tcf of gas consumption or 5 percent of the U.S. natural-gas demand. A reduction of that magnitude could easily take $1.00/MMBtu off the price of gas, or $20 billion per year in savings. This kind of savings opportunity needs to be seriously explored and pursued. That is also far more valuable than a small capacity savings in a regional market by having transmission bring in extra generating capacity at peak periods. This peak generation is for the most part, more gas-based generation that just as easily could be moved by a gas pipeline to a generator near load. Leaving aside potential coal-to-natural gas opportunities, only the transmission grid can move coal, nuclear, natural gas, wind, and hydro generation simultaneously to load. Transmission is fuel neutral and that is its undervalued benefit that almost all the planning and policy decisions ignore today.

Jacob Williams, VP Generation Development, Peabody Energy, jwilliams@peabodyenergy.com