Transmission Benefits All Users of the Power Grid

A large share of transmission’s benefits are unrelated to expanding use of renewable resources. For example, one of the largest benefits of transmission is that it aggregates diverse sources of electricity demand, which many planners call the benefit of load diversity. Because different regions experience peak demand at different times, mostly due to variations in climate and weather, transmission allows peak electricity demand to be met with less generating capacity. While renewable resources also benefit from transmission accessing weather-related geographic diversity in their output patterns, the analysis presented below indicates that this benefit is smaller than the load diversity benefit. The fact that a large share of the benefits of transmission expansion are unrelated to renewable energy indicates that current transmission planning and cost allocation methods, in which interconnecting generators pay for a large share of transmission expansion, are inefficient and not just and reasonable. Similarly, most of the transmission benefits identified in studies like MISO’s analysis of the Multi-Value Projects (MVP) result from more efficient use of conventional generation rather than greater use of renewable generation. MISO’s 2017 MVP analysis found the MVP lines enable 52.8 million MWh of wind, up from 43 million in the 2014 version of the analysis.[1] MISO also found that incremental 9.8 million MWh of wind accounts for 2.2% of the total production cost savings of the MVP lines,[2] which implies that all 52.8 million MWh of enabled wind only account for less than 12% of the total production cost savings. This indicates that shifting from less efficient to more efficient conventional generation accounts for the remaining 88% of the total production cost savings. Given that production cost savings account for over 90% of the total benefits MISO quantified for the MVPs, expanded use of wind accounts for at most around 17% of the total benefits of the MVP lines.[3] This further confirms that transmission investment is valuable even without accounting for the benefits of increased use of renewable energy.

The value of load diversity

One of the largest benefits of transmission expansion is that it aggregates diverse loads, allowing peak electricity demand to be met with less generating capacity because localized peaks in demand can be met using surplus generating capacity from other areas that are not experiencing peak demand at the same time. For example, the June 2021 West Coast heat wave was quantified as a 1-in-1000 year event in the Pacific Northwest,[4] yet grid operators were able to keep the lights on because the heat wave most severely affected California and the Pacific Northwest at different times, allowing each region to meet load using imports from the other region. Load diversity is primarily driven by regional differences in weather and climate, and to some extent by time zone diversity across very large east-west aggregations of load. Climate diversity benefits occur in all regions, but are particularly pronounced in regions, like the Northwest and Southeast, that contain both winter-peaking and summer-peaking power systems. Transmission’s ability to access weather diversity is also very valuable, particularly during severe weather events that tend to be at their most extreme across a relatively small footprint.[5] There are also inherent diversity benefits from larger aggregations of load, as the variability in usage from even very large industrial loads is cancelled out. The potential for transmission investments to reduce the reserve margin requirement has been recognized by a number of system operators. MISO recently estimated through reliability simulations that its MVP portfolio is expected to reduce required planning reserve margins by up to one percentage point. This reduction in planning reserves translated into reduced generation capital investment needs ranging from $1.0 billion to $5.1 billion in present value terms, accounting for 10–30% of total MVP project costs.[6] SPP’s Value of Transmission report found its recent transmission investments provide an assumed two percent reduction in SPP’s planning reserve margin, yielding 40-year net present value savings of $1.34 billion from reduced generating capacity costs.[7] MISO analysis shows that a lower need for capacity due to load diversity saves $1.9-2.5 billion annually, nearly two-thirds of the RTO’s total value proposition of $3.1-3.9 billion annually.[8] Notably, this is 4-5 times larger than the roughly $500 million annual benefit MISO found for being able to make use of higher quality wind resources. Similarly, PJM finds annual savings of $1.2-$1.8 billion from regional load diversity.[9] Over $150 billion in benefits from load diversity The magnitude of the load diversity benefit can be quantified with analysis of EIA hourly load and generation data for each grid operator,[10] which shows the reduction in peak capacity needs from aggregating diverse loads and renewable resources across larger regions. Our analysis quantifies load diversity benefits within the US portions of the Eastern and Western Interconnections, as well as across the entire Lower 48 states (aggregating load across the Eastern, Western, and ERCOT Interconnections) for all hours in the year 2020. As summarized in the following table, the coincident peak is much smaller when loads are aggregated across large areas than when each grid operator must build enough capacity to meet their own non-coincident peaks. Within each of the Eastern and Western Interconnections, sufficient transmission could reduce the need for peak capacity by around 100,000 MW, for a total of 200,000 MW of capacity savings, relative to a scenario in which each grid operator must rely entirely on their own resources. Aggregating loads within the West provides a very large diversity benefit, likely due to the inefficiency of the West’s many small grid operating areas and the climate diversity benefit between summer-peaking Southwest power systems and winter-peaking Northwest power systems. Aggregating loads among the Eastern, Western, and ERCOT Interconnections yields an additional 22,000 MW of diversity benefit. Table 1: Potential Load Diversity Benefits Within and Among Interconnections, 2020

	Within East	Within West	Lower 48
Sum of non-coincident peaks (MW)	618,512	234,691	927,369
Coincident peak (MW)	512,989	139,623	704,906
Reduction in capacity need (MW)	105,523	95,068	222,463
Reduction in capacity need (%)	17%	41%	24%
Value of reduced capacity need	$75 B	$67 B	$158 B

Assuming that the value of capacity is roughly equal to the cost of building a new gas combustion turbine,[11] the potential savings from building enough transmission capacity to aggregate load across the entire Lower 48 totals $158 billion, with $75 billion in benefits within the Eastern Interconnection, $67 billion in benefits within the Western Interconnection, and an additional $16 billion in diversity benefits among the East, West, and ERCOT. These results may be conservative for several reasons. First, individual grid operators must plan their power system to meet reliability standards like experiencing one day of outage every ten years. The above analysis examined actual peak loads for the year 2020, whereas a planning reserve margin would require additional capacity to address interannual variability in peak demand. With strong transmission ties, grid operators would be able to count on imports to address some if not all of that interannual variability due to their load diversity. Second, the above analysis does not examine the value of transmission for enabling load diversity within grid operating areas. For example, MISO’s northern and southern regions have large load diversity from weather and climate diversity, yet there is limited ability to benefit from that because they have weak transmission ties. Those two factors are likely somewhat offset by the fact that most grid operators count on some level of imports from their neighbors for purposes of meeting peak demand, so some of the load diversity benefit calculated above is being realized today. However, at least in part due to inter-regional transmission constraints, most grid operators greatly discount the quantity of imports they rely on for resource adequacy planning purposes.[12] Load diversity benefits larger than renewable diversity benefits in Northwest Additional analysis of EIA data for the Northwestern U.S. shows that, even in 2020’s worst case scenario of a west-wide heat wave, there are still significant geographic diversity benefits across the region. As shown in the load and net load duration curves below, the U.S. portion of the Northwest Power Pool could have realized a 5 GW reduction in peak load and 7 GW reduction in peak net load (from 2 GW of renewable diversity benefit) in 2020 if it aggregated diverse loads and renewable resources by evaluating resource adequacy on a regional basis. Using the same method as above, this translates into regional savings of around $5 billion if the benefit were realized through a reduced need for new gas combustion turbine capacity.

Figure 1: Peak load reduction by aggregating across US portion of NWPP

Figure 2: Peak net load reduction by aggregating across US portion of NWPP This analysis indicates that, on today’s power system, much more of the value of transmission is realized through load diversity than renewable diversity. In the NWPP example above, 73% of the total reduction in peak net load can be attributed to load diversity (4,975 MW out of 6,826 MW of total peak net load reduction), with renewable output diversity making up the 27% remainder. This confirms that transmission benefits all grid users, and counters the misperception that the need for transmission investment is primarily driven by renewable growth. As a result, current transmission planning and cost allocation methods, in which interconnecting generators pay for a large share of transmission expansion, are inefficient and not just and reasonable.

### [1] https://cdn.misoenergy.org/MTEP17%20MVP%20Triennial%20Review%20Report117065.pdf, at 22 [2] Ibid., at 7 [3] Conservatively assuming the high end of MISO’s range for the benefits from reduced wind capacity investment due to the MVPs of $1.451 billion, added to wind’s estimated $2.38 billion in production cost savings, and then calculated as a share of the low end range for total MVP benefits. [4] https://www.climate.gov/news-features/event-tracker/preliminary-analysis-concludes-pacific-northwest-heat-wave-was-1000-year. [5] M. Goggin (Grid Strategies, LLC), Transmission Makes the Power System Resilient to Extreme Weather, Prepared for ACORE, with Support from the Macro Grid Initiative, July 2020. [6] MISO, 2011, pp. 34-36. [7] https://spp.org/documents/35297/the%20value%20of%20transmission%20report.pdf at 16 [8] https://cdn.misoenergy.org/2020%20MISO%20Value%20Proposition%20Calculation%20Details521882.pdf, at 22 [9] At 2 https://www.pjm.com/about-pjm/~/media/about-pjm/pjm-value-proposition.ashx [10] Data available at https://www.eia.gov/electricity/gridmonitor/sixMonthFiles/EIA930_BALANCE_2020_Jan_Jun.csv, https://www.eia.gov/electricity/gridmonitor/sixMonthFiles/EIA930_BALANCE_2020_Jul_Dec.csv, [11] Using $708/kW cost of a combustion turbine from https://www.eia.gov/outlooks/aeo/assumptions/pdf/table_8.2.pdf [12] For example, PJM only reduces its reserve margin by 1.4% to account for the value of imports https://www.pjm.com/-/media/committees-groups/committees/pc/2021/20211005/20211005-item-05b-2021-pjm-reserve-requirement-study.ashx at 19 -Michael Goggin is the Vice President of Grid Strategies.