Study: Midwest wind and transmission build-out lowers power prices with minimal impact on rates

Wholesale electric power prices would drop significantly in the Midwest over the next decade with large amounts of wind generation capacity added, while transmission costs to consumers would rise minimally, according to a new study.

Synapse Energy Economics did the study on behalf of Americans for a Clean Energy Grid, which said adding more wind power to the electric grid could reduce wholesale market prices by more than 25% in the Midwest region by 2020.

“The general effect is to see a lowering of the clearing price in this market,” said Bob Fagan, senior associate at Synapse Energy Economics, who co-authored the study.

The study, titled “The Potential Rate Effects of Wind Energy and Transmission in the Midwest ISO (MISO) Region,” evaluated the electric power market in the upper Midwest including all or most of North Dakota, South Dakota, Nebraska, Minnesota, Iowa, Wisconsin, Illinois, Indiana, Michigan and parts of Montana, Missouri, Kentucky, and Ohio.

“The Midwest has a lot of wind but you do need transmission to tap into that market,” Fagan added. Currently, about 10 GW of wind are operating in the MISO system.

The benefits of putting more wind onto the grid more than outweigh the costs to build the transmission required, according to the report.

“You see a savings of $10 MWh price reduction effect, perhaps as high as $50 MWh especially in the out years when 50 GW of wind added,” Fagan said. Those savings would be passed along to consumers through lowering retail electricity prices by $65-$200 each year, according to the report.  

The report says that wind continues to get cheaper, with improved technologies, while the projected cost of coal-fired power has begun to climb. The increasingly global coal market has given rise to higher coal prices with new EPA environmental controls contributing to the move away from coal. More than one-half of MISO generation is coal-fired.

Wind penetration was analyzed over different scenarios, anticipating different levels of coal retirements. MISO sees about 3 GW of retirements on tap in the short run, with as much as 12 GW over the longer term.

Wind and natural gas are poised to fill in that shortfall, with a massive investment in transmission capacity already under way.  On the existing transmission base, plus a set of projects that are known as the multi-value portfolio (MVP) projects, $5 bn will be spent in the Midwest over the ensuing five to seven years and already approved by FERC.

This will reinforce the grid and allow more power to flow from the western portion of the Midwest, tapping wind resources with power sent to eastern load centers in Minnesota and Illinois.

Under the current scenario analyzed by Synapse, adding MVP projects through 2020 is an increment of $1.60 per MWh for customers. That’s less than two-tenths of a cent per kWh.

In a breakdown of consumer costs, a typical bill of a Michigan customer of Consumers Energy shows that a customer who uses 1,000 kWh, the component that applies to transmission is only 5%. The bulk of the electricity cost applies to generation and distribution.

“People tend to have an inflated sense of just what portion of their overall bill affected by transmission,” Fagan said.

On the other end of the spectrum, with a large quantity of wind generation, upwards of 50 to 70 GW, by the 2030, the report envisions transmission costs that would be an increment of $11 per MWh, or about a penny per kWh.

“Building new transmission to integrate wind, solar and other renewables doesn’t have to be an enormous burden on consumers. It’s quite the opposite,” said Jim Hoecker, WIRES Counsel (Working group for Investment in Reliable and Economic electric Systems) and former FERC chairman.

“Transmission is an enabler. That’s the message I’d like to impart, is that it enables the development of new technologies and the benefits of those technologies to market,” he added

The other facet of renewable generation, economic development, is also a WIRES platform. “And this is a job creator. This transmission is going to create 150,000 jobs annually, and when you bring in renewables, that number effectively doubles,” he said.