Why are they ignored in transmission planning?
Sam Flaim is senior consultant with Compass LexEcon. Loren Toole is a technical staff member at the Los Alamos National Laboratory.
Why is there is there so much controversy about investments in transmission and distribution? We suggest it's because the benefits are poorly understood - or even ignored.
To address this problem we offer a discussion that identifies the economic and financial benefits that supplement the various theoretical approaches to grid optimization and cost allocation. Our discussion will describe also how capacity expansion (CE) and production cost models (PCM) can be used to estimate T&D project benefits at corporate, regional, and national levels. Along the way, we will note the limitations of cost/benefit analysis, at both a theoretical and planning level, and will present conclusions that suggest how regional economic models can be used to compute indirect and induced economic effects of proposed project investments. (The latter usually are larger than the direct effects alone, but are rarely addressed.)
Overall, we suggest that using economic models to evaluate T&D investments creates two unexpected outcomes. First, some projects with few efficiency or reliability benefits can have substantial economic benefits. Second, and conversely, some projects with large operational benefits may have small or even negative effects on a regional economy.