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Policy Review

Renewable Framework: Smart grids play a vital role in the US [free access]

November 1, 2008

A large and growing number of states in the US have established renewable portfolio standards (RPS), and the country’s National Energy Policy promotes renewable energy. In a diversified and large electricity market such as that in the US, this can pose several challenges. GTR explores a few of the challenges which have policy and regulatory implications.

The first is the capacity of the current US grid to accommodate the new renewable generation sources that might be needed to meet this goal. Various sections in the three regional grids in the US are under tremendous strain. The western interconnect is among the most constrained, though new transmission interconnections are under construction. In the wake of new RPS mandates by states, grid operators failed to anticipate the large demand for interconnections, which resulted in severe backlogs. Further, the small size and large number of supply side players that renewables enable have been particularly challenging in terms of the regulatory requirements for due processes that the operators need to follow.

The second challenge is equitable cost allocation for building new transmission capacity for interconnecting what could be a large number of small generators spread over a vast geographical area. Since many of these generators are small, they are unlikely to be financially capable of absorbing upfront the cost of transmission interconnections. At the same time, the current transmission planning process does not allow operators to build significant redundancies into the system without reasonable assurance that the anticipated renewable energy generation will indeed come online. Thus, the process of long-term transmission planning and cost recovery assumes significance if the renewable targets are to be met.

Several state-level initiatives are underway to address these vexing issues. The California Independent System Operator (CAISO) received the Federal Energy Regulatory Commission’s (FERC) approval in December 2007 for its “Location Constrained Resource Interconnection”, which allows costs to be rolled into CAISO’s transmission access charge until the generators come online, after which the generators pay a pro rata share of the going-forward costs. The generator needs to demonstrate an interest of a minimum of 60 per cent transmission capacity, of which at least 25 per cent is required to be based on firm interconnection agreements. In order to protect the rate payer, the proposal caps the location constrained interconnection to no more than 15 per cent of the net high-voltage transmission investment. CAISO’s Generation Interconnection Process Reform (GIPR) has also received FERC approval recently. GIPR is expected to increase the speed and efficiency of studying interconnection requests by planning common transmission solutions for groups of generation projects and integrating such planning into the CAISO annual transmission planning process.

In July this year, the Public Utility Commission of Texas (PUC) selected a scenario of grid enhancement based on the potential to transmit a total of 18,456 MW of wind power from West Texas and the Panhandle to the metropolitan areas of the state. This is expected to cost approximately $5 billion. Developers in Texas need to deposit a letter of credit for 10 per cent of their assigned share of the estimated costs identified in the transmission plan.

The Bonneville Power Authority (BPA) has instituted an “open season” process to help rationalise its queue management. Under this system, BPA provides an annual opportunity for those in the queue to pay money to become part of transmission expansion investment to meet their transfer needs. All those making requests of transmission service must participate in the open season process or forfeit their position in the BPA interconnection queue. The customer is required to pay a full year’s transmission charge in advance to the operator. Analysts argue that this process may help bring about incremental enhancement in grid capacity but will not be able to create significant new capacity to connect regions of high renewable potential to the urban centres.

Another significant challenge for integrating a larger per cent of power from renewable sources is the grid’s ability to manage higher levels of variability and uncertainty in anticipating and scheduling power from renewables. Many renewable technologies such as wind and solar are non-storable and time-variable, resulting in intermittent power flow. Further, some of these technologies are still evolving and their impact on unusual grid situations is unknown. Under these circumstances, the current penalties may not serve the purpose of improving grid reliability.

On a pragmatic level, operators need new and more sophisticated models to predict grid behaviour at higher renewable penetration to enable efficient and reliable grid operations under all scenarios. In fact, one of Electric Power Research Institute’s (a collaborative industry research body) 2009 transmission projects is on enabling transmission for large scale renewable integration. However, a more sophisticated and longer term solution is needed to transform the grid which is currently more suited to large, fossil fuel generators.

The current dominance of fossil fuel means that the electrical networks are designed for energy flows in a single direction – from large, remote power stations to load centres. The use of dispersed, time-varying renewable energy generators is more likely to result in bi-directional flow. A “smart grid” that can enable generators to talk to their customers and participate in grid management, a grid that can anticipate disturbances and “self-heal” is probably the answer to such challenges. Such a grid also has the potential to reduce power costs, enable storage of electricity and improve grid reliability. The FERC, National Association of Regulatory Utility Commissioners (NARUC) and several state-level regulators have initiated a collaborative dialogue process on achieving a smarter electric grid in the US.

With President-elect Barack Obama wanting 10 per cent of electricity in the US to come from renewable sources by 2012 and 25 per cent by 2025, these issues are likely to be addressed sooner rather than later. The prospect of a greener US power system is definitely in the larger global interest.