Government Lab Study Highlights Additional Benefits of New Transmission
According to a new study published by Lawrence Berkeley National Laboratory (LBNL), existing transmission planning approaches run the risk of understating the economic value of new transmission infrastructure. In part, this is because roughly half of the marginal value of transmission in providing congestion relief occurs during extreme grid conditions and high-value periods that account for only five percent of hours, but are challenging to model and so are often not fully considered in transmission planning.
This new study focuses on one additional potential benefit of transmission infrastructure – congestion relief.
The study reported four key findings:
1 – Wholesale power prices exhibit stark geographic differences that, in many cases, are stable over time. These differences demonstrate the potential value of transmission in enabling economic trade within regions, alleviating transmission congestion.
2 – Many regional and interregional transmission links have significant potential economic value, such as reducing congestion and expanding opportunities for trade. In general, according to the study, interregional links are found to have greater value than within-region links. However, many high-value regional links also exist.
3 – The value of transmission is correlated with overall energy prices and varies by region and year. For example, according to the report, congestion has generally been getting worse in SPP and ERCOT over the last decade. For other ISOs, however, the value of transmission in relieving congestion and facilitating trade has been variable over time, oftentimes spiking when wholesale prices are high or in the event of extreme conditions, such as the 2014 polar vortex event that impacted northern United States.
4 – Extreme conditions and high-value periods play an outsized role in the value of transmission, with 50 percent of transmission’s congestion value coming from only five percent of hours. The study found that extreme conditions and high-value periods dominate transmission congestion value. On average across all links, 50 percent of transmission congestion value derives from just five percent of hours. For some links, though, the proportion is above 80 percent, and it is rarely below 40 percent. Only a portion of these hours come from designated extreme events identified by FERC and others, meaning that periods that drive transmission value go well beyond historical weather events to also include the many other “normal” drivers for pricing gradations, such as uncertain generation or other infrastructure outages, fuel price volatility, forecast errors, and electric demand volatility.
In sum, according to the study, transmission planners run the risk of understating the benefits of regional and interregional transmission if extreme conditions and high-value periods are not adequately considered. As documented in the broader literature, most new transmission in recent years has focused on reliability enhancements and generator interconnection, rather than large-scale new regional or interregional transmission to deliver economic benefits.
In addition, models that evaluate the economic benefits of transmission often employ simplifications, including normal weather, little or no volatility in natural gas prices, perfect foresight, and limited generator or other infrastructure outages. These simplifications result in underestimates of the amount of congestion seen in real-world market conditions. T
he study suggests that such tools may understate by half the marginal value of transmission in providing congestion relief, by underestimating the role of transmission as insurance against the cost of extreme grid conditions and high-value periods that are natural and oftentimes regularly-occurring features of actual market operations.
These periods are natural features of actual market operations. As such, the study highlights the need for planners to more comprehensively assess the value of transmission under both normal and extreme conditions.
The First Step Starts with Finley… and a FREE Consultation!