Transmission Planning – Returning to Fundamentals

There are major challenges facing transmission planning today.  William Hogan (Harvard) says that “markets should produce better choices than … the central planner.”  Of the many methods for transmission planning, the emerging one seems to be the “wait-and-see” method — wait and see how the generation resources locate so as to relieve transmission constraints.  Many have pointed out that the prevalence of interconnection studies are today’s version of transmission planning.

Two initial points.  (1) Until we have a reliable energy source that is compact, safe and portable, we will be dependent on centralized power stations that require transmission to deliver to customers.  (2) Transmission requires infrastructure that, like roads, will be in our environment for many years.    These two facts imply the need for transmission planning in the form that looks at optimal use and allocation over a period covering an appreciable lifetime of transmission equipment.

So, select a horizon year, say 10 years into the future.  Then develop scenarios on generation allocation, electric demand, even industry structuring and regulatory environment, sufficient to paint a picture of the possible futures.  Assign probabilities, if you want.  Develop a transmission plan or plans for each future.  Optimize it in accordance with any objective function you would like to apply, such as minimize costs including investment, losses and congestion costs, subject to conditions such as reliability criteria or range of nodal prices.  Stage the plans; i.e., determine how and when each component of each plan will be implemented.  From all the separate plans, identify the specific projects that would maximize transmission utilization going into the future.  (The alternate way of viewing this is to find the projects that would minimize the possibility of underutilizing the transmission system.)

The characteristics we are looking for as we try to integrate the set of disaggregated plans are:

  • Robustness – transmission projects that will be needed in the most probable, if not all, future.
  • Flexibility – projects that are dependent on other decisions such as the construction of new power plants or other transmission projects, or projects to undertake once the path to a set of futures requiring the same projects becomes more certain.

And so we have a transmission plan.  It could take a lot of work, so it makes sense to have a planning entity, not necessarily centralized, but at least transparent to the market.  And if we don’t like the plan, we can start all over again with a new set of objectives and assumptions, but the two initial points remain and provide the imperative to do the planning.

Interconnection studies that do not look beyond the initial year of operation of proposed power plants nor consider alternative futures, would not afford us the clear choice of robust and flexible transmission projects.  They are thus not consistent with the fundamental form of planning described above.

Incentives

Although not really a traditional part of transmission planning, it is necessary to address the mechanism of funding transmission development since the absence of such seems to be a disincentive to perform transmission planning.

A common method is to collect transmission use fees, especially congestion fees, to create a fund from which transmission investments can be made.  This is a socialized cost that is not popular amongst generation providers who may rightly or wrongly believe they are not responsible for supporting the reinforcements to the grid caused by others.  Also, before sufficient funds are collected, the markets tend to adjust and compensate via pricing mechanisms, leading to the “wait-and-see” planning result.

Another common method, used in US markets, is to have the transmission providers develop plans using similar fundamentals as described above and apply with regulatory agencies to have these projects approved and added to their rate base.  The transmission providers are then responsible for obtaining funding for approved projects.  Today’s transmission providers, unbundled from the cash rich generation side, face the challenge of raising enough financing to undertake all the desired projects.

For a while, transmission projects were embedded in the interconnection process for new power plants.  But without a broader base for funding, the most that can be expected here are incremental capacity transmission projects that individual power projects can support.  Anything more leads to the unwanted characterization of “gold-plated” plans.

A more proactive approach seems to be to have a planning entity publish transmission plans developed under the fundamentals described earlier in this article and open the component projects to participant funding.  This approach is applied in international markets such as Argentina and Brazil.  As a last resort, the national government would step in to provide additional funding.  This may be a good model to consider for US markets with the transmission providers taking the role of the investor of last resort.

Conclusion

To close, there is too much at stake not to perform a fundamental level of transmission planning.  To implement transmission reinforcements that would be useful for only the first year of operation of power plants is wasteful and ultimately more costly to the consumers.  To wait for generation markets to adjust would be tantamount to shaking the dog to make it wag its tail.  Transmission is, after all, but a small fraction of generation investment cost.

References:

Some reference material for some of the ideas and concepts included in this article:

  • William W. Hogan, “Resource Adequacy & Electricity Markets,” EnergyBiz, Vol. 2, Issue 5, Sept-Oct 2005, pp. 26-28.
  • Yakout Mansour, presentation at panel session on Transmission Matters, Conference on Electricity Market Design Imperative, Oct. 5-6, 2003, Chicago, IL.
  • Ricardo Austria, et al, “Transmission Planning Today: A Challenging Undertaking”, Electricity Journal, May, 2004.