The economics of transmission in New England

According to the report, the New England States Committee on Electricity (NESCOE) and the ISO initiated the study in early 2009 following receipt of a letter from Maine's Governor John Baldacci requesting the ISO's support in advancing a "...regional vision for developing renewable energy." Shortly after, the NESCOE submitted a letter to the ISO on behalf of the governors, asking that the economic study be done. The assumptions used in the study were developed by the States with technical input from the ISO.

Background

All of the New England states, except Vermont, have adopted aggressive renewable portfolio standards (RPS) representing about 11% of demand in 2009 but growing to as much as 23% by the year 2020.

Utilities are under pressure to acquire renewable energy (or credits) from owners of operating renewables facilities in order to comply with the RPS programs. For each missing megawatt hour of renewable energy where the mandated percentages are not met, nearly every RPS in New England imposes a sizable fee[2] that is typically collected by each State's Public Utility Commission (PUC). The cost for either the renewable energy credit, or the compliance fee, is passed on to the ratepayers in the form of higher electricity bills.

The cost of meeting renewable mandates

In order to develop the RPS sources needed to satisfy legislative mandates, most transmission operators intend to build numerous transmission projects either to rural areas in New England or to out-of-region sites, generally into Canada. Several of these projects have already been proposed with more to come. And the state legislatures and PUC's have, thus far, responded favorably to having these costs socialized and paid for by the ratepayers in the region -- not by the renewable generators. Since most of this generation will be intermittent (wind) and largely operate off-peak and off-season, the ISO-NE will also have to procure quick start generation or arrange for sizable storage projects to balance the system. These costs are likely to be socialized as well, and not paid for by the renewable generators.

In a part of the country where only 160 megawatts (MW) of wind is currently installed, all of it onshore, the ISO's report identified a potential for up to 12,000 megawatts -- a 75-fold increase from current wind capacity -- with 7,500 MWs on land and the remaining 4,500 MWs offshore. Most of the onshore development would be sited in rural and remote areas of Maine (4,500 MWs), New Hampshire (1,200 MWs), Massachusetts (1,000 MWs) and Vermont (650 MWs), hundreds of miles from urban areas.

Offshore wind would be distributed in 1500 MW increments off the coasts of Massachusetts, Maine, and Rhode Island. We note that no offshore towers are installed anywhere in the United States at this time, and that Cape Wind, a proposal to erect 130 towers in Nantucket Sound off the coast of Massachusetts represents one of the fiercest wind battles worldwide!

Despite only limited wind generation experience in the region, and no offshore experience, the document assumes an average capacity factor for offshore wind of 40.7% and inland wind factors of 29.3% in Maine and a whopping 35.4% for the rest of New England!

But what caught our attention were the costs and scale for new transmission development outlined by the ISO -- information that should be required reading by every electricity consumer in New England, and every politician.

In order to meet the 12,000 megawatts of wind potential identified in the report, the ISO anticipates 4,320 new miles of transmission with midrange "order of magnitude" costs between $19 and $25 billion (500 kv or 765 kv lines). Even the more modest scenario of 4000 megawatts of on- and offshore wind was estimated to need 3,615 miles of new transmission ranging in cost from $11 to $14 billion.

The ISO states that its intent was to conduct a "what if" analysis that would inform the states of the economic and environmental impacts of various scenarios. "Although this analysis presents a variety of economic results for comparison," it wrote, "[the analysis] was not a least‐cost plan or multi‐year, present‐worth analysis, and it did not include a "feedback loop" that accounted for how consumers or investors would react to the different sets of circumstances presented."

Indeed!

Given the way New Englanders have responded negatively to wind development thus far, it is impossible to imagine a situation where ratepayers would embrace the environmental, economic, and social costs of industrializing their rural areas with turbines and transmission. It's regrettable that the ISO did not take this opportunity to speak frankly to the governors of New England rather than bolster Baldacci's (et.al.) pie-in-the-sky "vision" when it concluded that "New England has significant potential for developing renewable sources of energy ...primarily from inland and offshore wind resources."

In his memo to the ISO last December, Mr. William Short, an energy analyst with decades of experience in renewable energy deployment, warned that "promoters of renewable energy projects are getting their poorly conceived ideas made into statutes and regulations. Those statutes and regulations are leading to higher costs to end users than if sound economic renewable energy policies were implemented." He goes on to recommend an alternative policy approach and then challenges the ISO to "get over the idea that it should only respond when asked by state legislatures or public service commission's" and, instead, become the independent energy policy expert for New England.

Mr. Short, we agree!

[1] The ISO-NE is a non-profit entity tasked with managing the New England grid system and ensuring the day-to-day reliable operation of the region's bulk power generation and transmission system.

[2] The 2009 compliance fee for the region is $60.92 per megawatt hour. Renewable energy credits are trading at around $30 per megawatt hour.