On August 16, 2022, President Biden signed into law one of the most significant reconciliation bills for climate and clean energy investments in the United States. The Inflation Reduction Act (IRA) aims to support different technologies for clean energy production, transportation, carbon emission reduction, domestic manufacturing, and expanding a workforce suitable for the energy transition. However, despite the passing of this watershed bill, there is still a major challenge to successfully electrify the grid. The success of the IRA hinges on much needed transmission infrastructure updates and improved policy.
Transmission Woes: Congestion and Curtailment
Ensuring that renewable power reaches the areas that need electricity is a long-term challenge the U.S. needs to address. While renewable generation moves us closer toward decarbonization, transmission infrastructure is needed to ensure that the clean energy being produced is consumed and reaches the areas that need it. A widely cited study by Princeton University concludes that electricity transmission systems will need to expand 60 percent by 2030 and triple by 2050 to be able to incorporate the power generated from planned solar and wind projects.
The National Renewable Energy Laboratory (NREL) study, Examining Supply-Side Options to Achieve 100% Clean Electricity by 2035, concluded in all three of its renewable penetration scenarios that transmission capacity needs to increase by two to threefold. The IRA will only increase the already burgeoning solar and wind pipeline which will further press the need to expand the country’s transmission system.
Two of the biggest challenges renewables face when it comes to transmission are increasing congestion costs and curtailment rates. Grid congestion occurs when existing transmission lines are unable to deliver electricity to where it is needed. The analogy often used is to think of electrons as cars and power lines as highways: If too many electrons converge on the same road, congestion occurs. When the lowest-priced electricity cannot reach consumers, utilities must rely on closer, costlier, and usually more polluting plants to provide the electricity needed, which results in higher electricity prices for consumers and lost revenues for developers.
Wind and solar projects require three to five times as much land as fossil-fuel plants on a per megawatt (MW) basis; because of this, projects are usually built in remote areas where longer distance transmission lines are needed. Power generators usually pay for the interconnection lines that will connect them to the grid, but these costs can make a project untenable.
In 2020, the Natural Resources Defense Council (NDRC) published an analysis that showed 245 clean energy projects in advanced stages of development had withdrawn from the Midcontinent Independent System Operator (MISO), one of the reasons for many were that grid upgrades would be too costly for the project. This issue is not unique to MISO, and project backers that fail to perform proper due diligence at the outset of a project may find themselves with delayed timelines and higher costs. This is why an advisory team that helps clients identify risks at all the stages of a project’s life cycle is critical.
When congestion occurs, ISOs revert to different strategies, such as curtailment, to prevent a system overload. There are two main causes for curtailments: system-wide oversupply and local transmission constraints. System-wide oversupply is usually seen in the spring months where demand for electricity is low, but generation is high. Local transmission constraints occur when there is an abundance of electricity in one area, but insufficient or inadequate transmission infrastructure to deliver the electricity to other places that need it.
Storage has been helping to alleviate system-wide oversupply by storing surplus energy and using it in the evening hours. However, local transmission constraints need new infrastructure to help electricity move; storage alone cannot solve transmission constraints – for now. An example of a successful case is Texas, where, as wind generation continued to grow in the early aughts, the need for transmission lines increased. The Electric Reliability Council of Texas (ERCOT) created an electric transmission plan and eventually built new lines that brought down wind curtailment from 17 percent in 2009 to 0.5 percent in 2014. Transmission expansion plans like these need to occur at a national level.
As renewable penetration continues to increase, so have curtailment rates. For independent system operators (ISOs) that report curtailment details, the increase in curtailment has tripled or in some cases increased over fivefold. According to S&P Global, in the California ISO (CAISO) combined wind and solar curtailment in 2019 totaled over 960,000 megawatt-hours (MWh). This curtailment has increased to 2.1 million MWh in the first seven months of 2022. In Texas, where solar and wind installations have surpassed California’s, curtailment rates totaled over 2.1 million MWh in 2019; by 2021, they increased to 6.6 million MWh. Wind curtailment in the Southwest Power Pool (SPP) increased over fivefold, from nearly 1.2 million MWh in 2019 to over 6.3 million MWh in 2021.
All Eyes on Transmission Policy
Improving transmission infrastructure is not easy. The transmission system is made up of different players, including a mixed bag of who owns and who operates transmission lines, private and public utilities that must answer to different stakeholders, while the same is true for the developers and independent power producers (IPP) that build power plants. To add on to the complexity of the grid, there are also environmentalists, utility lawyers, NIMBYism, and multiple state and local agencies that all have a say in when and where transmission lines get built.
Despite the challenges and intricacy of the U.S. transmission system, steps are being taken to help improve transmission infrastructure. In November 2021, the Infrastructure Investment and Jobs Act (IIJA) authorized approximately $65 billion in new spending to expand and modernize the transmission system.
Additionally, the Building a Better Grid initiative by the Department of Energy (DOE) will use $12.5 billion from the IIJA for grid reliability improvements. The IRA builds on the incentives of the IIJA by allocating $2 billion to the Secretary of Energy for direct loans to non-federal borrowers for the construction or modification of transmission facilities. The Act also assigned $760 million for siting, permitting or final determination of regulatory status of high-voltage interstate or electricity transmission lines proposed for construction.
The Federal Energy Regulatory Commission (FERC), which regulates interstate transmission, has also been taking steps to improve grid efficiency, transmission planning and cost allocations. Forecasts vary, but it is expected that with the IRA passed, the U.S. will see between 200 gigawatts (GW) to 400 GW of wind and solar capacity being added in the next decade. As it is now, the grid is unable to handle this planned generation. As attention turns to transmission, it is essential for policy makers to ensure the U.S. grid is robust enough to unlock the full potential of the IRA.
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