Footing the Bill: Solar Projects Paying for Transmission Network Upgrades
- There is excellent potential for high solar distribution on national transmission networks, but poor system upgrade planning is holding back the integration of renewable power.
- There are potentially higher integration costs for renewable sources than traditional power generation resources due to site quality being more location-dependent, and capacity factors are currently lower than conventional energy generation. Lower capacity factors also tend to translate to lower utilization of transmission and a higher transmission cost per unit of energy generated.
- Making transmission costs more transparent would help facilitate the decisions that support cost-effective and fair renewable energy integration—especially as electricity consumers tend to cover a portion of the electric system transmission costs.
- While interconnection upgrades is a global issue, the United States recently hit the world news. A recent study reports that interconnection projects in the Midwest and Great Plains have passed the cost of upgrades to solar and wind projects, even though the whole system benefits.
- Some nations offer funding to help upgrade transmission networks to allow renewable integration. For example, the United Kingdom plans to offer up to £300 million to shovel-ready network locations.
Over the past decade, variable renewable energy (VRE) technologies, such as solar power, have flourished in countries worldwide. Huge investment continues to support the solar power industry’s growth, and many researchers have studied the potential for high solar distribution on national electrical grids.
To make VRE investment decisions, policy and electric-sector decision-makers face several trade-offs associated with location constraints, solar resource potential, supporting infrastructure requirements, and so on. Analysts typically include these trade-offs in project benefit calculations (estimates of solar energy and capacity value) and project cost calculations (estimates of solar integration costs such as supply-demand balancing and transmission investment).
Although direct costs are relatively easy to estimate, understanding system-integration costs is trickier. Researchers systematically quantify some essential system-integration costs, such as supply-demand balancing, resulting from solar energy production variability and uncertainty.
VRE projects reportedly have to pay for vast amounts of transition network upgrades. In the United States, solar and wind projects cover at least 90% of the bill. With low-cost renewable resources needed to meet international climate goals, why are some national transmission networks exploiting green energy sources?
Poor Planning Causing a Surge in Transmission Costs
VRE integration transmission costs are complicated to estimate as they are idiosyncratic and dependent on their geographical environment.
Although there has been an enormous uptake in solar power projects, little consideration has been given to the transmission costs connected to VRE grid integration, even though the associated costs can be significant. Integration costs for VRE are potentially higher compared to traditional power generation resources due to VRE site quality being more location-dependent. There is also the issue of VRE capacity factors being lower than conventional energy generation. It has been found that lower capacity factors translate to lower utilization of transmission and a higher transmission cost per unit of energy generated.
Making transmission costs more transparent would help facilitate the decisions that support cost-effective and fair VRE integration, especially as electricity consumers bear some of the electric system transmission costs. Unfortunately, many policymakers have restricted access to transparent, generalizable transmission-cost estimates. This has led energy analysts to use levelized cost of energy (LCOE) methods to compare the costs of generation resources. However, these somewhat simple methods typically focus on upfront costs and ignore the complex system-wide infrastructure investments needed to integrate a new resource entirely.
VRE integration transmission costs are complicated to estimate as they are idiosyncratic and dependent on their geographical environment. For example, it is tricky to attribute costs for system-level resources such as transmission infrastructure to individual generation resources. Transmission investments tend to have multiple functions, including reliability support and economic relief while facilitating the integration of new generators. It is worth noting that both VRE resources and conventional generators need access to expanded transmission networks.
There are also substantial geographic discrepancies in system requirements, and costs can make it challenging to generalize costs across different projects. A project’s incremental transmission needs have to be weighed against locations with the best VRE resources. For example, installing solar panels in remote, sunny areas which are hard to reach will require more significant transmission investments. It presents economic trade-offs versus installing, where they are easier to access, but sunlight is less prominent.
The liberalized electricity markets regularly create coordination problems between investments in the regulated electrical grid (such as the transmission network) and assets in new power generation. As a result, project developers sometimes prioritize utility-scale VRE development in high resource areas to improve project economics instead of considering the combination of system-level transmission and generation costs that could decrease the overall social cost.
Interconnection Upgrade Issues in the United States
The failure to upgrade consideration results in low-cost renewable resources required to achieve climate goals, being caught in extensive interconnection queues.
Although interconnection upgrades are a global issue, the United States has recently hit international headlines. ICF Resources conducted a new study on behalf of the American Council on Renewable Energy (ACORE). It found that interconnection projects in the Midwest and Great Plains have been asking solar projects and some wind projects to pay for entire upgrades to transmission networks—even though the whole system benefits.
The analysis carried out for ACORE is called “Just and Reasonable? Transmission Upgrades Charged to Interconnecting Generators Are Delivering System-Wide Benefits”. It concentrated on a representative sample of the network upgrades in the Midcontinent Independent System Operator (MISO) and Southwest Power Pool (SPP) regions in the United States. The study found that two-thirds of the upgrades evaluated provided significant system-wide benefits. These are benefits that other users of the shared system are receiving at little to no cost. This result looks to contravene current cost allocation principles in the United States.
The ACORE President and CEO, Gregory Wetstone, has a helpful way to clearly describe how transmission networks work. He says the regional power grids are similar to highway systems—they move power to where it needs to be and keep electrons flowing to homes and businesses around the clock. Currently, new solar projects are being asked to cover the financial burden of adding new lanes to that electron highway, which will benefit everyone.
Network improvements should be a part of long-term planning carried out by grid operators such as MISO and SPP. The failure to upgrade consideration results in low-cost renewable resources required to achieve climate goals, caught in extensive interconnection queues. Furthermore, this flawed cost allocation method of transmission network upgrades destroys otherwise cost-effective renewable projects, harming consumers and threatening the swift response needed to climate change.
There is an urgent requirement to plan the grid for the future and identify transmission network upgrade requirements. The generation interconnection process is becoming increasingly expensive, making the current tactic of allocating their costs to individual solar power developers unreasonable and uneconomical.
This ACORE study has highlighted that transmission upgrades deliver significant broad-based, regional economic benefits. In addition, it shows that adjustments in regional transmission planning and cost-sharing are needed to make sure their expenses are spread to all beneficiaries. This change will allow the grid to handle the prompt deployment of clean energy projects necessary to meet national climate targets.
The study has been particularly poignant in the media because it coincides with the Federal Energy Regulatory Commission (FERC) trying to decide whether to change how regional transmission organizations (such as MISO and SPP) allocate expenses for new projects wanting to connect to the grid.
Rendering to FERC’s “beneficiary pays” principle, regional transmission organizations are expected to ensure that transmission costs are assigned corresponding to estimated benefits. For example, under existing rules, new electricity producers in MISO pay for 90% of the cost of significant upgrades (345 kilovolts and larger), while others on the system pay 10%. In SPP, new producers cover the total cost of any necessary upgrades to interconnect while other users of the system get all the resulting benefits for free.
Solar energy prices continue to drop rapidly, good news for states and corporate buyers in the United States wanting to meet their renewable standards and targets. This has resulted in renewable generation interconnection requests that have surged in both MISO and SPP. Over 150 GW of active solar, wind and hybrid resources are now stuck in interconnection queues across both markets. At the same time, the necessity and demand for renewable power are expected to grow in the coming years significantly.
Funding Available for National Electricity Networks
It is recognized that delay is not an option for building clean energy infrastructure to help power the nation emissions-free.
It is not all bad news for solar projects regarding available financing for national transmission network upgrades. For example, in the United Kingdom, there is a plan to offer up to £300 million funding to help make improvements to the national electricity network. This joint effort between the distribution network operators (DNOs), Ofgem, and the Energy Networks Association (ENA) to match up with locations where network investment can be applied quickly to support shovel-ready developments. The aim is for this funding to help the nation transition to net zero.
To determine where the funding should be allocated, they plan to launch six weeks to permit local authorities, developers, and other organizations to offer evidence on why their region should be selected for extra capacity. The main criteria of the funding includes the following:
How much of the capacity will be used in the near term
How fast infrastructure and solutions could be completed
How much value for money it offers
The grant’s regulators urge electricity network companies to come forward with fresh new sites for green investment. It is recognized that delay is not an option for building clean energy infrastructure to help power the nation emissions-free.
The areas that do not have a shovel-ready network location for capacity increases over the next two years will not necessarily miss out. There is the opportunity to submit evidence to DNOs for inclusion in the RIIO-ED2 price control business plans.
For transmission networks to support VREs, there is an urgent need for long-term, proactive planning based on expected future use. Consideration should be given to all the multiple needs and benefits, then spread the costs broadly to those who benefit. This is an expensive and complicated exercise to complete, but the result will be increased VRE generation and cheaper electricity.
There is a possibility that planning and cost-sharing may be more helpful for encouraging transmission growth than finding approaches to overcome the legal challenges. Many high-profile renewable projects have been hindered by government agencies, private landowners and some environmental groups.
Frequently Asked Questions (FAQs)
What is power transmission?
The bulk movement of electrical energy from a power-producing site to an electrical substation is called ‘electric power transmission.’ The interconnected power lines which facilitate the transportation of electricity are known as a ‘transmission network.’ This is separate from the local wiring between high-voltage substations and consumers, usually called ‘electric power distribution.’ The transmission and distribution network combination are parts of the essential role of electricity delivery, known as the ‘electrical grid.’
How is renewable energy integrated into the power grid?
A systems approach is currently being applied to facilitate integration development and demonstrations to focus on technical, economic, regulatory, and institutional hurdles for using renewable energy and distributing it. Renewable energy integration incorporates distributed generation, energy storage, thermally activated technologies, and consumer demand into the electric distribution and transmission systems.
What are the grid integration issues of renewable energy sources?
Many countries are establishing ambitious renewable energy targets for their electricity supply by implementing sustainable, low-emission improvements to their transmission networks. However, this is not a simple endeavour, as many grid integration hurdles need to be overcome to facilitate the implementation of renewable energy. For example, new renewable energy generation, new transmission networks, increased need for system flexibility and electrical grid planning to support a larger renewable energy market.
What is solar grid integration?
Solar-Grid integration is the technology that allows solar power produced from large-scale PV or CSP systems to connect to the existing national power grid. This technology involves a lot of careful considerations and attention, including solar component manufacturing, installations, and operation.
What are the primary challenges faced by the electric grid?
With the ever-increasing demand for electricity and the growing popularity of environmental advancements such as electric vehicles, the grid faces mounting pressure. Some of them include:
- Increasing volume of renewable energy sources
- Grid modernization
- Electricity transmission losses
- Frequent power outages
- The threat of cyber attacks