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Tackling the wires the American way

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Should transmission lines be built in the expectation that generators will turn up to use them, or should generation be built in the expectation that new wires will follow? The Federal Energy Regulatory Commission is edging towards a third way

The American solution to transmission challenges may appear a disjointed, unorganized, region-specific affair -- and in many respects it is -- but seen from a wider perspective the disparate efforts are all part of the same overall play. Everything from the smallest interconnection payment dispute to visionary studies of massive new transmission corridors attempt in some way to deal with a fragmented and geographically vast energy grid that was never designed to operate as one market. And for each new wind plant that goes up, the challenge for project developers of gaining access to fast dwindling transmission capacity gets tougher.

"Right now the developers are cherry picking their projects," says Brian Parsons of the National Renewable Energy Laboratory. "They're finding the existing places on the network they can tap into, but the low lying fruit is disappearing quickly. People are starting to pay more attention to the new, longer term possibilities."

A combination of chronic underinvestment in the wires, rising demand for energy of any kind, and a feverish push to make wind a formidable contributor to the nation's energy supply is forcing some solutions to the forefront. As the national authority on transmission, the Federal Energy Regulatory Commission (FERC) will play a paramount role this year in how -- and if -- wind power will leap the transmission hurdle. All eyes are on key decisions expected shortly.

At FERC's helm is chairman Joseph Kelliher, who says that if wind is to be developed in a major way, it will require transmission upgrades. "What's happening is that we have over 20 states with renewable energy standards and that's driving the development of wind," Kelliher says. "But a lot of the best wind is where transmission is weak. There's a chicken or the egg issue, where that wind potential is known, but a question of: will that wind potential be developed?"

The federal view

One immediate solution is to allow wind generation to connect to the network, even if that particular network is not strong enough to take all the wind power all of the time, and then regulate for mismatches between demand and production. This so-called "conditional/firm" approach to connection is a promising item on the near term FERC docket.

Currently, FERC treats generators in starkly black and white terms of either providing "firm" or constant power, such as base load coal power plants, or non-firm or "conditional" power, where the generator regularly operates intermittently and/or is willing to power down or lose connectivity to the grid when operators deem the fluctuating grid demands it. As Mike Jacobs of the American Wind Energy Association (AWEA) explains, wind would greatly benefit from the designation of a new generator class that combines aspects of both. That is what a "conditional/firm" designation achieves.

With today's capacity factors, a wind plant could reliably provide a relative amount of "firm" power equivalent to near its capacity factor for ten months of the year, while being willing to cope with production curtailment during two months of the year when power reaches peak levels and the grid is stressed. In the hydropower dependent Northwest, the two months in which wind could be asked to face curtailment would likely coincide with the heavy spring runoff, says Natalie McIntire of the Renewable Northwest Project, a lobby group. The Bonneville Power Authority, which provides over half the electricity for the region, is supportive of conditional/firm. McIntire adds, however, that most utilities throughout the US are not generally as accepting, which is why FERC approval of the approach could immediately provide results for new wind integration. "This is really good for wind," Jacobs says. "The beauty of it for wind is that people say wind is not available on peak days. Well it's generally true we're not one hundred percent on peak days. If we are going to risk curtailment, wouldn't it make sense at the times when we are not there one hundred percent. We like that idea."

FERC's Kelliher seems to agree. "That's an area where we've shown some flexibility," he says, while hinting at a possible decision. "We had a technical conference and looked at conditional/firm as a possible new transmission service. That's something we are considering now and I hope we act pretty early in the year."

One area Kelliher is not so keen on is the relatively new and niche idea of merchant transmission. This is where independent companies with financial wherewithal identify areas where they believe building transmission and then finding a buyer could net a profit. "I think so far the record for merchant transmission has been disappointing," says Kelliher, describing how in the past few years, out of ten or 12 merchant lines approved, only one is in operation, another is expected online shortly, but the rest are "moribund." The difficulty is lining up the required financing, he says. Projects that do go forward have already found generators with customers signed up through a long term power purchase agreement (PPA). "It doesn't seem you can get merchant transmission built absent a long term contract," he says.

Regional perspective

Kelliher sees potential to improve the situation for wind through increased regional planning by Regional Transmission Operators (RTO) and extending a wider planning approach beyond RTOs to vertically integrated utilities. The traditional model of the vertically integrated utility operating its own transmission system designed to serve its own customers has slowly been replaced over the past decade to a grid operated by RTOs or Independent System Operators (ISOs).

RTO/ISOs independently operate two-thirds of the country's electrical grid, using transmission to stitch together a quilt of the various generators and utilities. This arguably increases overall efficiency of the system, lowers transaction costs and provides an impartial oversight of a competitive retail electric market. The largest RTO is PJM, which operates the grid over a 14 state area including Pennsylvania, New Jersey and Maryland.

Notably, RTO/ISOs also tend to accommodate wind energy more effectively by using their larger footprint to balance the additional net fluctuations that wind's variable supply can create. DOE's Parsons says that RTOs dispatch power based on the cheapest transaction and take a more nuanced view of wind energy than most of the power markets in the US West which, by contrast, are operated through bilateral contracts and vertically integrated utilities. He says the capacity of transmission lines in non-RTO areas is contracted to certain parties.

"They don't give wind a whole lot of capacity," he says. "RTOs look at the cheapest generation. In the West, if we had an RTO, wind would be able to get on those existing lines." But when FERC previously suggested that the entire US move towards RTOs there was fierce resistance, with states feeling that FERC was attempting to ride roughshod over their autonomous rights, says Parsons.

As FERC's Kelliher navigates these politically charged waters, he sees the role of RTOs and the wider, regional approach to transmission planning as a winner for wind. "If you don't have RTO planning, you're not likely to realise the full potential for wind in individual states or regions," he says.

The wild West

What Kelliher means is that FERC intends to see that utilities in non-RTO areas begin to behave more as if they are also guided by RTO planning, even if they are not. That is not to say that upcoming guidance from FERC on regional planning is likely to suggest that utilities in non-RTO areas relinquish some of their self-control to become part of a new RTO. Insiders say this is a near impossibility in the western non-RTO states. But changing some market behaviour in these areas is a real possibility.

"Vertically integrated utilities lack the incentive to relieve transmission constraints in a non-discriminatory manner," says FERC, indicating that utilities that provide both generation and transmission are not likely to provide wires for a competing generator on an equitable basis. Existing utility planning processes also lack transparency, says FERC. The potential clearly exists for "undue discrimination" in infrastructure development, it adds. "The Commission proposes to require transmission providers to participate in an open and transparent regional transmission planning process." Acknowledging state and utility sensitivities, however, FERC says that its expected reforms are "not designed to create new market structures, divest control over transmission, impinge on state jurisdiction, or weaken the protection of native load customers."

New Avenues

Once FERC has issued its formal guiding principles, which is expected anytime, some of the barriers to new transmission should start to come down. How costs for new transmission will be allocated remains to be seen, though California has made its decision (page 32) . "For wind, those costs are a big hurdle. And since it's an intermittent resource on a smaller scale than nuclear or coal, then those transmission upgrade costs are a disincentive," says Kelliher.

From conditional/firm, to expansions of RTO planning, to questions of allocating transmission cost, many of these proposed rulings will fall under FERC's new package of proposed changes to the Open Access Transmission Tariff, originally enacted 11 years ago. But not all the action is restricted to FERC. Congress and the Department of Energy (DOE) are playing a role in another, albeit longer term, transmission solution. In the Energy Policy Act of 2005, the DOE was authorised by lawmakers to identify and designate "National Interest Electric Transmission Corridors" as areas of the country where transmission is critically inadequate, underdeveloped, and improvements would serve the national interest. Under the act, if FERC determines that states and players within a DOE authorised corridor are not moving along the permitting process at an acceptable pace, the commission could override state laws and grant permitting approval to allow transmission expansions and interconnections to occur.

"The important point is that the DOE wants to see the state planning process that's in place work, and to see them work effectively," says the DOE's Ellen Lutz. "We want the states to get this done efficiently and in a timely manner. That would eliminate the need for [FERC stepping in].

The top tier areas identified with "critical" wires congestion are the Atlantic coastal region from metropolitan New York southward through Northern Virginia, and Southern California. Next up are areas of congestion "concern," which are New England, the Phoenix-Tucson area, the Seattle-Portland area and the San Francisco Bay area. Lastly, and with the most bearing on wind energy, the areas of "conditional" congestion are Montana, Wyoming, Dakotas, Minnesota, Kansas, Oklahoma, Illinois Indiana and Upper Appalachia and the Southwest. Lutz says the DOE is awash in comments from a broad range of energy industry interests, all with a stake in a corridor determination.

Heartland transmission

The American Wind Energy Association (AWEA) is specifically pushing for DOE designation of a transmission corridor stretching east from the Dakotas, which it calls the Heartland Transmission Corridor. In preliminary studies by the DOE, this is identified as an area of "conditional" congestion that could slide into "critical" status as expected new generation comes online. AWEA says that across North and South Dakota, Minnesota, Iowa and Wisconsin, there is over 300 gigawatt of potential wind capacity waiting to be developed.

Jacobs sees fruitful parallels with how FERC actions played a key role in the vast expansion of natural gas projects in the last decade. He says that in the same way FERC's authority accelerated the permitting of natural gas pipelines to generators near load centres, the commission could streamline transmission lines connecting load centres to remote wind generators. FERC's permitting of pipelines over state roadblocks helped gas plants to locate where they were needed. "That's always been seen as the big competitive advantage for gas," says Jacobs.

Corridor uncertainty

The comment period for determining transmission corridors has been extended. The DOE recently sought to assure the public and stakeholders that should the department lean towards designating a particular corridor, it will first issue a "draft proposal" and extend the comment period for such specific proposals.

"The jury is still out on what a corridor designation would bring for an area," says Beth Soholt of Wind on the Wires, a transmission-focused wind energy advocacy group based in the Midwest. "We think a corridor designation would send a signal to the Midwest states: it would underpin the fact they have to work together."

Like Parsons, Soholt also believes the transmission problem is bearing down on the US wind industry faster than is generally realised. "A group like ours is careful to balance the short term project, but we're running out of those near terms. As transmission gets to be more of a barrier, developers will realise that without new transmission they are not going to sign a PPA. I think developers only realise this to varying degrees."

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