Wait a Minute! You Want to Build Transmission for Renewables?

Ralph Izzo, Chairman and CEO of PSEG, is a great guy.  I have known Ralph since the days I worked at Standard & Poor’s and PSEG was one of my clients.  He also is a savvy reader of political sentiment especially in his home state of New Jersey and he has done a very good job at PSEG.  But I was a little surprised to read his very candid guest column in The Energy Daily June 2, 2009, on rethinking new transmission lines for renewables.

In fairness, he seemed to be taking arrows in the chest for the Governors of 10 eastern states who, generally, have solid environmental records but no politician wants the NIMBY headaches that come with building transmission even if it’s needed.  But since all politics is local, the last thing these Governors want is Congress supporting, funding or mandating the building of transmission corridors through their states EVEN IF they would be good for the expanding market share of renewable energy.  And state regulators are loathe to see their jurisdictional authority for siting and approval of energy projects preempted by the Federal Government.

But Congress, in adopting the Energy Policy Act of 2005, directed US DOE to develop National Interest Electric Transmission Corridors (NIETC) and to update the plan every few years.  That update is next due in a report to Congress in September 2009. But few of the Governors expected NIETC to cause a big hassle in their own backyards.

Now Congress eager to embellish its renewables and environmental credentials, is considering additional legislative action to speed up this NIETC progress as part of a grand strategy to bring smart grid technology to America.  The legislation would accelerate the ‘electric transmission superhighway’ to bring wind energy from Iowa and other wind-blessed areas in the Eastern Interconnect to markets in the East Coast.

The governors are being hammered by constituents and environmental interests to oppose this federal intrusion and the reasons all sound very apple pie. These transmission projects allegedly will:

  • Undermine local renewable projects.
  • Encourage uneconomic decisions in generation and transmission.
  • Hurt job creation in the East by importing energy from the Midwest.
  • Give unfair advantage to renewable resources in the Midwest.
  • Create a ‘back door’ for delivering coal-fired generation to the East Coast.

Instead, the Governors argue we need a national renewable portfolio standard (RPS) to create economies of scale and reduce the cost of capital for developers in a stable national market.  Many of them already have state RPS policies which, in some cases, are higher than those likely to be agreed upon in a Congressional compromise.  This is a politicians dream—adopt a mandate but let others do the heavy lifting and bear the cost of achieving your policy ambitions.

What really worries the northeastern governors is that after preaching for years that their emissions and environmental air quality problems are the fault of that evil Midwest coal generation, these states and others will be called upon to bear a share of the cost for expanding renewable energy capacity and opening markets to lower cost resources.

That may be where the utility executives interest and those of the Governors converge.  When PJM and the Midwest ISO integrated their transmission systems a few years ago a funny thing happened.  Remember all that dirty coal fired generation in the Midwest the Northeast Governors were railing against?  Well, when utilities in the East had an opportunity to buy that “cheaper” power they bought every last megawatt available to reduce their average portfolio cost of energy for customers.

I agree with Ralph that ‘building transmission for transmission’s sake’ does not make sense. But this time things are different.  Achieving the benefits of smart grid technology requires widespread adoption of a consistent set of interoperable standardized equipment and practices.  That can not happen state by state with the inevitable piling on of special requirements.  Just as the real interstate highway system changed the face of America  so will the superhighway system of electric transmission.

I was really surprised to hear Ralph say that building transmission solely for renewable resources does not make sense because of the intermittent production nature of wind.  WOW!  That’s why every megawatt of wind has to be backed up by another megawatt of dispatchable generation typically combined cycle natural gas. No doubt support for these transmission superhighways is coming from wind and solar generators and other merchant energy producers with more traditional resource portfolios all of whom want larger markets for their products.

Utilities have largely been weaned from power production by wholesale competition and open access transmission rules but they see another risk on the horizon from the transmission superhighway as an enabler of open access where the convergence of smart grid technology, real-time energy pricing, the drive for energy efficiency and reduced emissions threatens to bear down like a full body blow on regulated investor owned utilities whose only hope of achieving their renewable and emissions mandates is from reducing demand for their energy product and with it reduced earnings and return on equity.

I agree with Ralph that there is a high-stakes fight brewing and it could become a zero-sum game for many market participants.  The Governors all remember that time honored state house expression, “Give the people what they want—and give it to them hard!” They just don’t want to be the ones blamed for dispensing the bad tasting medicine.