With power projects cropping up faster than spring dandelions,an alarming disconnect has occurred between generation andtransmission in several regions of the U.S., according to PaulParshley, director of North American Electric Power for CambridgeEnergy Research Associates.
“A big wave has built up in the level of new projects that areannounced. In the last two years, about 200,000 GW of electricityhas been announced, and it’s important to keep in mind that this isan accelerating curve… a hundred gigawatts in the last ninemonths or so. This is more than is needed, and so the current signspoint to misalignments in the degree and the timing and thelocation of some of these additions.”
For instance, he told attendees at Energy Expo 2000 in Houstonlast week that the Midwest is the only region where all of thepower projects announced are not equal to the anticipated need fornew capacity. “Conversely, in the Northeast, what you’ll see isthat there already is under construction more power than we thinkis needed. What happens here is that you then can anticipateboom-bust cycles, with the bust cycle being a longer stretch thanthe boom cycle. That’s important in thinking about how markets aregoing to open up and how prices are going to be affected.”
In the regulated world, transmission was developed almost inlock step with generation, but a large spate of merchant powerplants has thrown that out of whack.
“It’s important to keep in mind that there’s been a bigde-coupling between the investment in generation and the investmentin transmission. And this is potentially a source of a bigproblem,” said Parshley. “With [transmission] gridlock there is noone that really has the incentive to make the investments in thegrid system that may be necessary to hook up new plants to protectreliability of the system and accomplish a number of other things,not the least of which is facilitating the opening up ofcompetitive markets.”
While transmission represents only about 10% of the assets inthe power sector, it’s been the focus of attention for the industryand regulators for the last six months, Parshley noted, as isevidenced by the debate over regional transmission organizations(RTOs).
“Like with retail choice, there is an uneven rolling out. Thereare different models. There are different rules. There aredifferent regulations. It’s not easy to say how they will all matchup well together when they start coming into closer contact, andthat’s an issue to keep in mind. The sector is in change. There area lot of oxen that may need to be gored in the process. It’s notclear how we’re going to get there.”
Bringing generation and transmission together could be as toughas getting home on Houston’s rush-hour freeways. With its order onRTOs, the Federal Energy Regulatory Commission is leaving much upto industry to decide. “By not forcing the tough issues to a headat this time, FERC is hoping that flexibility, cooperation andreasonableness will prevail. In fact it may turn out they’re takinga five-year process and turning it into a 10-year process.”
Parshley suggested three possible outcomes for the restructuringindustry. 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 ofscale out there in the transmission business and that they can becaptured. Capturing them assumes that there’s going to be properalignment between regulatory incentives and those who own and thosewho 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 viewedas kind of a bypass of the traditional grid system..This is a verydifferent world from the one in which you have bigger, smarter,more efficient grids, and the grid in this case may become somewhatless significant.”
Parshley’s third and final scenario envisions an industrybecoming 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 boldexperiments, companies trying to make a go of it as for-profittransmission entities, but we also would expect to see that therollout of this will be uneven. It will be a patchwork, andultimately we may find out that it either works very well or is afrustrating experience that needs to have some alternativesolution.”
Joe Fisher, Houston
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