Transmission Struggles to Keep Pace with Generation
With power projects cropping up faster than spring dandelions,
an alarming disconnect has occurred between generation and
transmission in several regions of the U.S., according to Paul
Parshley, director of North American Electric Power for Cambridge
Energy Research Associates.
"A big wave has built up in the level of new projects that are
announced. In the last two years, about 200,000 GW of electricity
has been announced, and it's important to keep in mind that this is
an accelerating curve... a hundred gigawatts in the last nine
months or so. This is more than is needed, and so the current signs
point to misalignments in the degree and the timing and the
location of some of these additions."
For instance, he told attendees at Energy Expo 2000 in Houston
last week that the Midwest is the only region where all of the
power projects announced are not equal to the anticipated need for
new capacity. "Conversely, in the Northeast, what you'll see is
that there already is under construction more power than we think
is needed. What happens here is that you then can anticipate
boom-bust cycles, with the bust cycle being a longer stretch than
the boom cycle. That's important in thinking about how markets are
going to open up and how prices are going to be affected."
In the regulated world, transmission was developed almost in
lock step with generation, but a large spate of merchant power
plants has thrown that out of whack.
"It's important to keep in mind that there's been a big
de-coupling between the investment in generation and the investment
in transmission. And this is potentially a source of a big
problem," said Parshley. "With [transmission] gridlock there is no
one that really has the incentive to make the investments in the
grid system that may be necessary to hook up new plants to protect
reliability of the system and accomplish a number of other things,
not the least of which is facilitating the opening up of
While transmission represents only about 10% of the assets in
the power sector, it's been the focus of attention for the industry
and regulators for the last six months, Parshley noted, as is
evidenced by the debate over regional transmission organizations
"Like with retail choice, there is an uneven rolling out. There
are different models. There are different rules. There are
different regulations. It's not easy to say how they will all match
up well together when they start coming into closer contact, and
that's an issue to keep in mind. The sector is in change. There are
a lot of oxen that may need to be gored in the process. It's not
clear how we're going to get there."
Bringing generation and transmission together could be as tough
as getting home on Houston's rush-hour freeways. With its order on
RTOs, the Federal Energy Regulatory Commission is leaving much up
to industry to decide. "By not forcing the tough issues to a head
at this time, FERC is hoping that flexibility, cooperation and
reasonableness will prevail. In fact it may turn out they're taking
a five-year process and turning it into a 10-year process."
Parshley suggested three possible outcomes for the restructuring
industry. One scenario predicts a few large RTOs coming into play.
"Some or all of them will have for-profit components to them.
Underlying this is the notion that there really are economies of
scale out there in the transmission business and that they can be
captured. Capturing them assumes that there's going to be proper
alignment between regulatory incentives and those who own and those
who control the transmission assets."
Another possibility is what Parshley calls "off-road solutions."
It embraces evolving technologies such as distributed generation.
"It's the solution that for want of a better term could be viewed
as kind of a bypass of the traditional grid system..This is a very
different world from the one in which you have bigger, smarter,
more efficient grids, and the grid in this case may become somewhat
Parshley's third and final scenario envisions an industry
becoming disillusioned with the idea of transmission as a business,
opting for more government involvement.
"We wouldn't be surprised to see a number of fairly bold
experiments, companies trying to make a go of it as for-profit
transmission entities, but we also would expect to see that the
rollout of this will be uneven. It will be a patchwork, and
ultimately we may find out that it either works very well or is a
frustrating experience that needs to have some alternative
Joe Fisher, Houston