Economic Benefits

Grid operators, researchers quantify benefits of transmission

Grid upgrages would have far-reaching benefits for consumers.
Grid operators, researchers quantify benefits of transmission
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New analysis from grid operators and academic researchers quantifies the large and diverse net benefits grid upgrades provide to consumers.

AWEA has consistently explained that new transmission more than pays for itself by improving electric reliability and reducing consumers’ electricity costs. Upgrades to America’s obsolete and congested transmission grid are needed anyway, and the benefits from bringing new clean energy sources online are just another reason to expand the grid.

Transmission accounts for around 10 percent of a typical electric bill. However, building transmission more than offsets that cost by reducing energy costs, which account for the majority of the typical electric bill, by providing access to cheaper sources of energy.

Southwest Power Pool finds transmission provides billions in net savings for consumers

The Southwest Power Pool (SPP), the grid operator for Kansas, Oklahoma, Nebraska, and parts of neighboring states, recently released groundbreaking analysis that looks backward to quantify many of the consumer and reliability benefits of the transmission it has installed, confirming previous forward-looking analysis by SPP and other grid operators. SPP found that the transmission upgrades it installed between 2012 and 2014 alone:

– Create nearly $12 billion in net present value benefits for consumers over the next 40 years, or around $800 for each person currently served by SPP, or $2,400 per each metered customer.

– Yield savings that are 3.5 times greater than the cost of the transmission upgrades.

– Provide benefits that are higher than SPP planning models had estimated.

As shown in the following chart from SPP’s report, these upgrades are already paying for themselves, and the multiple benefits only grow over time.

Benefits (left) exceed cost (right) of transmission upgrades

chart 1

Benefits of transmission exceed costs.

MISO grid operator analysis also finds large net benefits

Other grid operators have also found large net benefits from transmission upgrades. As shown below, in 2014 the MidContinent Independent System Operator (MISO), the grid operator for all or part of 13 Upper Midwest states, released analysis showing transmission upgrades that are currently underway are expected to:

– Provide $13 to 50 billion in net benefits over the next 20 to 40 years, or between $275 and $1,000 for each person currently served by MISO.

– Yield benefits 2.6 to 3.9 times greater than their cost, an increase from the 1.8 to 3.0 benefit-to-cost ratio that had initially been calculated several years earlier.

Sum of transmission benefits identified in MISO’s analysis

chart 2

Benefits of transmission according to MISO.

Other benefits of transmission

Both analyses acknowledge that these are conservative estimates that do not include many benefits that are difficult to quantify. SPP’s analysis was reviewed by electric industry consultants the Brattle Group, who found the analysis “path-breaking” and robust, but also noted it is likely an understatement of transmission’s benefits. Below, SPP’s report lists the benefits that it was able to quantify, as well as those there were not accounted for or that could only be partially quantified. Importantly, many valuable benefits, such as greater market competition and liquidity, a more resilient power system, fuel diversity and system flexibility were not quantified.

Benefits identified in SPP’s analysis

chart 3

Benefits of transmission according to SPP.

Other researchers confirm transmission’s many benefits

Other recent studies explore some of those benefits in more detail. An article published in the journal Nature Climate Change last month examines the benefits of building an even larger nationwide transmission network that would enable the optimal deployment of the lowest-cost renewable resources. With the transmission in place to access the most productive wind and solar energy, by 2030, “carbon dioxide emissions from the U.S. electricity sector can be reduced by up to 80% relative to 1990 levels, without an increase in the levelized cost of electricity.”

That article also finds that a major benefit of transmission is capturing the geographic diversity in wind and solar output due to the fact that “the average variability of weather decreases as size increases; if wind or solar power are not available in a small area, they are more likely to be available somewhere in a larger area.” As a result, the study notes “paradoxically, the variability of the weather can provide the answer to its perceived problems.”

By using transmission to aggregate renewable resources and electricity demand across the entire country, the study found the U.S. can reliably and cost-effectively meet electricity demand in all hours, with wind providing 38 percent of the energy mix and solar providing 17 percent. Even with a 14 percent increase in electricity consumption, demand can still be reliably met with the removal of all coal generating capacity and a significant reduction in gas generating capacity from what we have today. That is possible because the diversity of wind and solar output over a large area enables them to provide a more consistent supply that can be relied on for meeting electricity demand. The study also examined the potential use of storage to provide that same service, but found it would have “a higher cost than HVDC transmission lines,” even with aggressive assumptions for storage cost reductions, and was not necessary.

Another recent study examines the value of transmission for providing flexibility to respond to uncertain changes in policy, the generation mix and other aspects of the power system over time, one of the benefits that was not quantified in SPP’s analysis.

Analysis by Dr. Ben Hobbs at Johns Hopkins University and his graduate student Francisco Espinoza shows that current transmission planning methods, which at best use deterministic scenarios to highlight ranges of future outcomes for the power system, are “a weak tool for decisions under uncertainty” and “don’t account for flexibility.” Probabilistic methods that quantitatively account for uncertainty in the transmission planning process result in a larger and more optimal transmission build, saving consumers tens of billions of dollars (page 102) relative to deterministic methods that fail to account for the value of transmission in providing flexibility. Moreover, the probabilistic method saved hundreds of billions of dollars relative to some deterministic planning methods that greatly underbuilt transmission.

As utilities and grid operators confront growing uncertainty due to an increased reliance on volatilely-priced fuels, regulation of carbon emissions, rapid technology improvements for renewable resources, and large changes in the generation mix, the flexibility to respond to unexpected changes that is provided by transmission becomes even more valuable.

Just as the interstate highway system made the American economy more efficient and flexible by facilitating interstate trade, a more robust transmission system will save consumers money and enable a more efficient transition to a clean energy future, regardless of what direction that future takes.

Economic Benefits

As Senior Director of Research, Michael oversees AWEA's analytic work. Michael Goggin has worked at AWEA since February 2008. Prior to joining AWEA, he worked for two environmental advocacy groups and a consulting firm supporting the U.S. Department of Energy’s renewable energy programs. Michael holds an undergraduate degree with honors from Harvard University.ojlklkl

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