To ensure effective decision-making and investment appraisal, system planners, policymakers, and decision-makers should consider the full spectrum of benefits provided by transmission, according to the London Economics International (LEI) study, “How does electric transmission benefit you? Identifying and measuring the life-cycle benefits of infrastructure investment,” which WIRES published on Jan. 9.
LEI recommends that such considerations need to be made in concert with the design and development of the project, the study noted.
Properly conceived transmission investments, like other large infrastructure projects, create benefits in the short term, for instance, by boosting the local economy – commonly measured by Gross Domestic Product (GDP) – and creating new jobs through local spending on construction-related services, according to the study.
As noted in the study, WIRES commissioned LEI to prepare a study to demonstrate that transmission benefits can be quantified, and would provide system planners and decision-makers with important baseline information to properly plan for the grid of the future.
The study noted that LEI conducted an analysis of benefits by evaluating two hypothetical interregional transmission investment projects that reflect two common commercial drivers for transmission investments:
- Increasing market efficiency through additional trade of electricity
- Accommodating delivery of lower cost and cleaner energy resources – that may be in remote locations – to consumers
The study said that the two hypothetical projects are:
- The $200m ($32m annual levelized cost) Eastern Interconnect project, which would enhance electricity trading between PJM Interconnection and the Midcontinent ISO (MISO) regions, leading to efficiency improvements. The project represents a transmission investment that is primarily intended to expand market access for lower-cost generation by increasing trade of electricity and adding supply resources into higher-energy-cost regions. The direction of energy flows on the new transmission line is not static – the flows may change to reflect evolving market conditions and supply-demand balances within and between the two regions. By harnessing trade opportunities between PJM and MISO, buyers and sellers on both sides of the new line receive benefits at varying times. The enhancement of trade between PJM and MISO creates savings to customers on their electric utility bills, as well as other benefits
- The Western Interconnect project is assumed to deliver wind-based energy from the Rocky Mountain area of the Western Electricity Coordinating Council (WECC) to load centers of southern California by utilizing an approximately 700-mile new transmission line passing through multiple states. The project represents a transmission investment that brings energy from remotely located resources to load centers. Such a project would be another example of “trade” because it creates a bridge between suppliers and consumers, culminating in a mutually beneficial outcome. This project includes the development of new generation in conjunction with the new line. The electric consumers in southern California benefit from lower electricity costs, while the generators and residents in or near the remote resource location can also benefit from higher revenues – for those new wind generators – and more job opportunities – for residents in the Rocky Mountain area. The project has a cost of $3bn (for the transmission, $480m annual levelized cost); wind generation investment costs are additional
LEI’s approach for estimating the benefits of transmission is based on projections of future electricity market conditions, with and without the hypothetical transmission projects, the study said.
The benefit calculus in the study is based on empirical analysis and uses a suite of simulation-based modeling tools, the study said, noting that LEI’s modeling covers the construction phase of the project and the first 15 years of the operations under a “base case” or “most likely” forecast for the future electricity market conditions. LEI also examines alternative supply conditions to measure longer-term reliability benefits, the study said.
The “base case” or “most likely case” spans the period of 2021 through 2035, according to the study’s technical appendices. The base case outlook combines the most likely set of market assumptions for key market drivers along with normal system operations and average load conditions, based on “50/50” load forecasts, the appendices said.
According to the appendices, to quantitatively measure how transmission investment changes electricity market outcomes, reduces the costs of electricity supply and improves reliability, LEI employs its proprietary electricity network simulation model, POOLMod, along with simulators for other wholesale electricity market-related products like capacity and renewable energy credits as needed.
POOLMod – which consists of such key algorithms as maintenance scheduling – simulates the dispatch of generating resources in the market subject to least cost dispatch principles to meet projected hourly load, and technical assumptions on generation operating capacity and of the transmission system, the appendices noted.
LEI customizes the simulation models to fit specific wholesale market designs of each region, the appendices said, adding that the same models are also used to measure impact of transmission investment on carbon emissions.
In addition, LEI deploys the Regional Economic Models, Inc., (REMI) PI+ model – which can simulate the direct, indirect, and induced effects of transmission investment during the short, medium, and longer term – to examine how infrastructure spending and electricity cost savings impact the local economies and employment.
Benefits of hypothetical projects
Discussing benefits in the short term, the study also noted that for the Eastern Interconnect project, GDP is to increase by $22m/year, with 250 new jobs created per year; for the Western Interconnect project, GDP is to increase by about $700m/year, with more than 5,500 new jobs created per year.
In the medium term, the modeled transmission investments create such benefits as lowering the costs of electricity to consumers by allowing more cost-effective energy and capacity resources to reach consumers.
The study added that medium-term benefits for the Eastern Interconnect project include electricity market cost savings of $275m/year; 1,200 new jobs/year in MISO (2021-2026) and 3,000 new jobs/year in PJM (2027-2035); and the avoidance of 3 million metric tons cumulatively of carbon emissions for PJM and MISO. For the Western Interconnect project, medium-term benefits include electricity market cost savings of nearly $1,200m/year; about 9,400 new jobs/year; and the avoidance of 18 million metric tons of carbon emissions cumulatively for the California grid system.
The study also noted that in the longer term, well-planned transmission brings significant reliability value, as, for instance, transmission investment can serve to dampen or neutralize the cost impacts of unexpected events in the market, much like an insurance policy. Well-placed transmission investment can reduce the frequency of supply interruptions – blackouts – and temper rising energy market costs from supply constraints, the study said.
Longer-term benefits for the Eastern Interconnect project include reliability benefits to consumers by avoiding higher energy costs – more than $22m savings in MISO and nearly $40m savings in PJM; as well as reliability benefits to the economy by avoiding supply interruptions – more than $1bn in MISO and PJM for at least one hour long of blackout. For the Western Interconnect project, benefits include reliability benefits to consumers by avoiding higher energy costs – more than $100m savings to electric consumers in California; as well as reliability benefits to the economy by avoiding supply interruptions – nearly $600m in California for at least one hour long of blackout.
Among other things, the study added that LEI suggests integrating economic valuation methodologies within current transmission planning processes. The system planning process should not only be looking at the technical needs and engineering characteristics of new transmission, but should also consider the numerous economic benefits that are derived from making the investment, the study said.