Transmission Planning for the Energy Transition and the Economics of Coordination
On May 13th, FERC will hold a meeting presenting new rules to help get the U.S. electric grid ready for an energy transition that is already underway. Electric transmission will be leading the show, and for good reason. Most studies agree that creating a reliable, modern, and resilient electric grid will require an enormous buildout of transmission. Because large infrastructure projects, like transmission lines, come with big price tags, it is absolutely critical to direct investment towards the projects that are cost efficient, increase grid reliability, and allow wide access to low-cost, zero-emissions energy. The need for these projects, combined with the cost of each one will understandably focus significant public attention on transmission planning frameworks. But policymakers are paying far less heed to the importance of operationalizing transmission planning frameworks using holistic modeling that can inform their decisions.
A recent peer-reviewed academic paper on transmission planning modeling (two Policy Integrity members are among the authors) has important implications for ongoing policy conversations around grid expansion. The authors’ study method exploits the idea of coordinated planning of several interrelated parts. In their model, the moving parts are transmission (onshore and offshore) as well as generation and storage capacity, and the whole system is co-planned. The paper’s focus is on holistic transmission planning (with case studies for the ISO-NE and PJM grids) that includes accounting for negative environmental externalities. The key takeaways from this paper can help inform ongoing transmission planning policy conversations.
Three takeaways from the study:
First, the paper demonstrates how to functionally co-plan the offshore transmission grid together with the onshore grid, with a focus on optimizing points of interconnection (between offshore wind and onshore transmission). Optimizing these points could significantly reshape the points of interconnections themselves and offshore transmission, and also lower total cost. It therefore will not make economic sense to plan the offshore wind grid without simultaneously planning the onshore grid. Planners will need to make sure the onshore grid is ready to integrate offshore wind power driven by ambitious U.S. goals. In addition, this kind of optimization can illuminate the scale and location of optimal onshore investments in generation and storage.
Second, given the strong federal and state regulatory emphasis on (and, in some cases requirement for) limiting negative externalities like air pollution, planners should consider these damage costs upfront, together with investment and generation costs. Specifically, the authors’ holistic planning model co-optimizes investment and generation costs and negative externalities (like greenhouse gas emissions and local air pollution), and shows how incorporating these externalities into planning models will lead to infrastructure and generation investments that will reduce those externalities. The paper shows that the total costs of upgrading and operating the power system are higher when accounting for negative environmental externalities upfront (compared to ignoring those) but, contrary to some popular narratives, remain in the same order of magnitude. Furthermore, accounting for these costs in planning leads to lower operating costs down the line, even if there is a higher upfront capital investment.
Third, planning for a future with increasingly frequent extreme weather events will require the use of a rich set of operating scenarios. Public policies and economics will increasingly cause clean but weather-dependent energy resources (e.g., wind and solar) to replace fossil-fuel generating units. Planning in a way that maintains grid reliability under extreme weather scenarios will therefore be necessary. The authors demonstrate how to account for extreme scenarios in planning models, and find that extreme operational scenarios typically result in greater operational costs and can lead to different optimal transmission planning decisions.
How does this paper connect to the latest energy policy debates?
Unfortunately, current planning processes are often retroactive, piecemeal, and siloed, leading to suboptimal planning decisions. Studies such as the one in this paper should alert planners that this is a mistake, hopefully in time to change course, by illustrating how different modeling choices reveal different optimal decisions. Given the many long-term planning proceedings underway across the country, these findings are worth emphasizing.
Since FERC first proposed its long-term transmission planning and cost allocation rule, a wide array of stakeholders has been clamoring for the rule’s finalization because we need to quickly build a lot more transmission to accommodate and expedite the clean energy transition. Most stakeholders have focused on ensuring that planners consider a robust range of benefits from grid expansion and understand the costs of different planning choices. These are vital considerations. Thoughtfully operationalizing transmission planning frameworks through data-driven modeling choices will also be absolutely critical to illuminating these benefits and costs, but modeling has garnered less public attention.
Regional transmission planners should consider using models that reveal expansion decisions that also reduce air pollution
Once FERC finalizes its rule, every transmission planner will have to file compliance plans demonstrating that they are meeting requirements. Currently, negative externalities like increased GHG emissions or localized air pollution are underpriced or unpriced in virtually all U.S. regions. By introducing these externalities into transmission planning models, policymakers can gain visibility into which infrastructure investments (for both transmission and clean energy resources) will reduce those externalities. Whether or not the FERC rule requires doing so, planners should consider this kind of holistic planning because both current and future generations will pay a steep price for choices we make today.
Planners need to account for extreme weather scenarios to make robust planning decisions
Because the paper demonstrates how considering extreme weather scenarios during modeling leads to different optimal transmission planning outcomes, it highlights the importance of ongoing policy and regulatory developments in these areas. Standardizing the variety and number of these scenarios across planning regions could help to ensure that our infrastructure is up to the task of handling the wide range of future uncertainties in operating conditions, and supply and demand forecasts.
Interregional planning endeavors don’t need to wait for a new rule
The paper’s takeaway highlighting the economic importance of co-planning offshore and onshore grids also has implications for policymakers’ efforts to plan across wider regions, like the Eastern Interconnection. (NREL quantifies the effects of coordinated offshore wind planning in their recent Atlantic Offshore Wind Transmission study.) If we want to fully benefit from the economics of coordination, interregional co-planning is key. Although FERC excluded interregional planning from consideration in its upcoming rule, such planning will be absolutely critical if we want to curb the costs of and unlock wide benefits from the energy transition. An upcoming DOE study will add to its body of work that already underscores the importance of building interregional transmission. But building without coordinated planning will yield suboptimal results and cost more.
Where do we go from here?
There are significant policy choices embedded in transmission planning models, which decisionmakers rely on to identify cost-effective outcomes. Understanding the dimensions and the impacts of these choices is important for guiding decisionmakers around the transmission planning pitfalls lurking between our outdated grid and a clean, lower cost energy future. Going forward, transmission planners should welcome and support stakeholders’ ability to test proposed planning practices and policies with robust, data-driven transmission planning modeling.
