The deal was made possible by a mechanism under which ratepayers will pay off the cost of the upgrade over time. California utility Southern California Edison (SCE) has completed the first three segments of the Tehachapi Renewable Transmission Project, which will allow for up to 700MW of generation, much of it wind power, to be exported from the mountainous pass to the nearby Los Angeles basin.
Thanks to the deal, one of California's largest substations, Windhub, is being built along with three 500kV transmission lines initially energised at a lower 230kV capacity. Once the remaining eight transmission segments are fully built and energised in 2012, as much as 4.5GW of new wind power is expected to be built in the region.
Tehachapi is one of three of California's famous wind generation locations where thousands of early wind turbines were installed in the 1980s. Around 600MW is operating, but new development has been hampered by a lack of new wires.
Defy the cycle
Hal Romanowitz, president of developer Oak Creek Energy Systems, says that the Tehachapi transmission upgrade is a great example of the success that can be achieved breaking the chicken-or-egg cycle that often plagues transmission. Developers do not build wind projects unless there are adequate wires to get their power to market. Utilities do not build transmission unless they are certain the lines will be adequately used by energy generation projects, which covers the capital costs.
In 2001, Romanowitz and other wind developers began a dialogue with SCE and other stakeholders explaining that thousands of megawatts of high-capacity-factor wind could further be developed in the region if transmission were available to export power.
California's green energy laws mean that SCE is required to generate 20% of its electricity from renewables by the end of 2010. No utilities are expected to meet this target.
California's grid operator, CAISO, understood that wires upgrades in the area could unlock vast wind resources while also strengthening the entire region's constrained electricity grid.
With those unified interests in mind, California regulators allowed the $1.8 billion in costs for transmission to be paid up front by SCE for construction and the costs later to be recouped through ratepayer bills.
"SCE needed two things: they needed a rate of return and they needed new assets," says Romanowitz. "One key thing was to say, if you upfront fund transmission, we'll come in with project capacity guaranteed to come online."
Multiple developers stepped forward with serious aims to build in the region led by the so-called anchor tenant Terragen Power, which signed a legally binding power purchase agreement to build 1.5GW of wind in multiple phases. The first 150MW is nearing completion. This big power contract gave SCE assurance that building the wires would be supported by new generation.
Also crucial to getting the deal done was that state regulators allowed the utility to make a healthy return, says Romanowitz. By risking the upfront cost, the utility will gain a return on its investment in the range of 12-14% compared to 4-6% it would get otherwise.
"Transmission needs to benefit the network in addition to benefiting wind," he says. "It's crucial the network costs get rolled into rates and you have to have upfront funding."