Why are US utilities missing the low hanging fruit?

Untapped efficiencies could mean that hundreds of millions of dollars are being missed by transmission system operators in the US, and the regulator is asking whether policies should change.
Published: Mon 15 Jul 2019

The US transmission system may not be deploying the most cost-effective technologies due to a lack of incentives and a disconnect between the investor and the beneficiary of the cost saving, according to a new report.

Recent advancements in electronics, communications and computer processing power mean that digital solutions could be a much more cost-effective way to expand grid capacity than building physical infrastructure, but the rules governing how much money utilities can earn were written many years ago and still favour traditional investment. The vast majority of applications for transmission incentives filed with regulator the Federal Energy Regulatory Commission (FERC) have focused on the enlargement of facilities rather than the improvement, maintenance, and operations of existing facilities. FERC is aware of the problem and has asked stakeholders in a wide-ranging review whether its electric transmission incentives policy should be updated in light of these technological advances. The transmission incentives Notice of Inquiry (NOI) asks whether transmission incentives should be based on a project’s expected benefits rather than being tailored to the risks and challenges of a proposed transmission project, and whether incentives could better encourage enhancements to existing facilities.

A recent report from consultants the Brattle Group and Grid Strategies identified some of the key technologies which would allow the grid to operate more efficiently at greatly reduced costs compared with traditional investment and made some suggestions for how to incentivize them. Two types of technologies identified in the report Improving Transmission Operation with Advanced Technologies: A Review of Deployment Experience and Analysis of Incentives will be of most benefit: those focused on flexible and dynamic control of transmission systems and those that explore enhanced and flexible application of pre-determined transfer capability that are used for operations.

This low hanging fruit such as dynamic line rating, power flow control and topology control is not being picked as quickly as it should because utilities are not familiar with these innovative products.

 

Sometimes, it takes utilities about a decade to adopt new technologies, says report author Brattle principal Bruce Tsuchida.

Taking advantage of these solutions can be a faster and cheaper way to potentially adapt to new circumstances such as increased renewable and distributed generation, similar to putting snow tyres on an older car rather than buying a brand new car that handles well in the snow, he tells Engerati. But if cost recovery is based on investment, utilities want to invest in expensive not cheap upgrade projects. Further, transmission companies don’t have any incentive to reduce congestion as their costs are passed through to the customer, so it is the customer who would benefit from lower charges.

Transmission costs have been rising dramatically over the last decade and account for a sizeable chunk of total retail rates… sometimes as much as 18% in New England, according to a comment posted by the New England States Committee on Electricity, a not-for-profit entity that represents the collective perspective of the six New England Governors common interest consumer electricity prices.

The American Public Power Association urged FERC to consider the possible effects on consumers in the process in comments filed last month, saying that some incentives were superfluous or too generous.

FERC issued a related notice of inquiry on its Return on Equity (ROE) policy, which also relates to natural gas and oil pipelines. ROE levels for transmission owners are higher compared to other industries, but there are substantial development risks involved, and they are based on the net book value of the purchased transmission assets, which is often much lower than what was paid for them.

The report authors suggest that FERC could allow transmission owners to keep a share of the estimated savings from deploying innovative technology options. Even if FERC does not make any policy changes, the Notice of Inquiry has shone a spotlight on the issue and utilities will take note, says Rob Gramlich of Grid Strategies, who co-authored the report.  Although in some regions cost recovery is a state matter, FERC has more jurisdiction over the issue than previously and what it says matters, he added. A technical meeting at FERC on DLR on 10th and 11th September will further the debate.

The report was prepared for industry groups Americans for a Clean Energy Grid, Sustainable FERC Project, and the WATT Coalition of technology vendors, namely Ampacimon, Lindsey Manufacturing, LineVision, NewGrid, Smart Wires and WindSim.

Comments were due on the FERC incentives policy docket PL19-3-000 by 25th June and reply comments are due by 25th August.

The report can be found here: https://brattlefiles.blob.core.windows.net/files/16634_improving_transmi...

Related Webinar