Part of Grid Network »

The Transmission Professionals special interest group covers the distribution of power from generation to final destination. 

Post

Tackling the biggest obstacle to new transmission — power providers' commitment phobia

Mark A. Gabriel's picture
President and CEO United Power Rural Electric Cooperative

Mark A. Gabriel is the President and CEO of United Power in Brighton, Colorado, a position he assumed in March 2021.  United Power is one of Colorado's largest rural electric power cooperative...

  • Member since 2021
  • 26 items added with 14,056 views

Originally published here. 

As the nation moves toward greater levels of electrification while simultaneously decarbonizing the generation mix, there is widespread recognition that more transmission is needed to bring renewable energy resources from afar to the load centers where the population resides.

In addition to transferring intermittent resources to population centers, transmission is needed to connect the multitude of local dispatchable generation resources to balance supply when renewable resources are not available.

However, the closure of baseload generation and replacement with renewable resources is out of sync with the construction of new transmission needed to meet energy demand. Wind and solar farms can come online rather quickly, as can battery storage, but the timelines for building transmission absent contracts creates a mismatch in timing and hinders the financing of this critical infrastructure.

Despite repeated and urgent calls for more transmission, projects continue to stall. Large, multistate projects suffer the same fate as simpler transmission upgrades capable of carrying more capacity from point A to point B.

The purported reasons behind the recurring failure of transmission projects to get the green light are numerable and diverse: There is limited financing, environmental reviews and permitting can strangle projects in red tape, or a poor return on equity makes transmission an unprofitable venture for investors.

But the reason transmission is not being built has nothing to do with any of these popular issues.

Instead, changes in the marketplace may have raised the risk profile to unacceptable levels for traditional utilities, and some newer entrants may not yet have the long-term financial backing or experience to commit to decades necessary for transmission contracts.

That is not to dismiss the other reasons behind our nation's stumbling transmission buildup. Transmission is not an easy business; it does take time to obtain permits, it does require investment criteria be met and most importantly, it does require purchasers to arrange long-term offtake contracts to support the cost.

Offtake challenges

The permitting processes require significant effort, and those processes can be improved. But in many cases, the permitting time and cost pales in comparison to the sales cycle of getting offtake agreements for the power at the end of the line.

It certainly takes time for financing to be arranged, but there is plenty of capital available for transmission once a commitment is made for the power offtake. And returns on equity are important, but too often the deals hinge on the same simple fact: Investors have insufficient assurance that they will be paid back amid market uncertainty.

To provide a clear example, thanks to the foresight of Congress in 2009, Western Area Power Administration was granted a $3.25 billion borrowing authority to back the construction of transmission that supports renewable (and other) energy development in our 15-state service territory, which stretches from Iowa to California, and Canada to Mexico. In the 11 years since, we have funded the construction of two transmission projects and the development of a third. There are at least eight other projects in the wings, stalled — not for money, or red tape or return on equity, but due to the lack of offtake partners and demand for the power.

As a large transmission entity that is part of the federal government, we know how to build, permit and manage transmission projects. Yet, even after gaining rights of way, preparing records of decision and completing design and engineering, most projects languish for lack of demand by utilities.

You might assume it is the utilities' fault, but investor uncertainty lies at the heart of the problem. This is especially the case in California where the future of the traditional electric industry lies in doubt. Not the future of demand, but the future of the supplier of choice.

The current business model that rests everything on a unit of measure — the kilowatt-hour — and is in decline among the majority of utilities of every sort, disincentivizes investments in transmission infrastructure since the surety of repayment is in question.

The irony is that the low-carbon future rests on more transmission to increase electrification, move valuable renewable resources to market and support storage needs. The secret to making this work is a new vision for long-term financial guarantees and commitment to strengthening the critical backbone of this nation.

There is a three-step process to achieving this vision:

  • Regulations should be reformed to allow investor-owned utilities and independent transmission developers to guarantee the repayment of transmission investment over multiple decades.
  • For public power entities and rural electric cooperatives, local and national governments should provide the financial backstop for transmission investments.
  • A new financial instrument, potentially a state- or federally-guaranteed bond, needs to be created.

Bottom line: We know how to build transmission; we know how to get it permitted; we know how to finance it. What we need is a guarantee of repayment. Only then can we build the transmission integral to a new energy revolution.

Mark A. Gabriel's picture
Thank Mark A. for the Post!
Energy Central contributors share their experience and insights for the benefit of other Members (like you). Please show them your appreciation by leaving a comment, 'liking' this post, or following this Member.
More posts from this member

Discussions

Spell checking: Press the CTRL or COMMAND key then click on the underlined misspelled word.
Tony Sleva's picture
Tony Sleva on Apr 28, 2021

Thank you for the post.  We need to change the billing structure developed by Samuel Insull about 100 years ago.

Repayment would be easier if electric utilities change their billing so that 50% of their revenue is based on KWH sales (consumption) and 50% of their revenue is based on KW demand (infrastructure).  After I placed solar panels on my roof, my monthly electric bill dropped to $15 per month.  My host utility needs to receive $50 per month to recover the investment they made to supply power to my house after sunset.

What do you think?  Should electric utilities be changing their billing structures?  Do you think flat rates, $10 per KW per month regardless of consumption, are possible?

 

Audra Drazga's picture
Audra Drazga on May 5, 2021

Tony,

You pose an interesting question - one that I always wondered about. If utilities are to getting less from ratepayers who have installed solar, how are they going to pay for all the new projects needed for infrastructure and clean power projects? Only so much can come from the government - or can it?  Also, the whole pandemic has added a dynamic to the mix in where some ratepayers have been given a pass at paying their bills.  This year with the new infrastructure bill is going to be an interesting one for utilities and vendors!

Mark A. Gabriel's picture
Mark A. Gabriel on May 5, 2021

Certainly there are temporary solutions in concepts like base charges, demand rates and time of use. I believe, however, a dynamic change is needed to reflect the fact that utilities will become network providers, much in the way telecommunications providers allow a myriad of devices to attach. I see a day where all-you-can-eat energy will come between certain hours, business will pay for resilience and reliability and time of purchase rates due to storage will become the norm. Today we do not pay for our cell phones based on minutes, nor free nights and weekends as we used to. The KWH charge is an anachronistic financial model.

Matt Chester's picture
Matt Chester on May 5, 2021

Today we do not pay for our cell phones based on minutes, nor free nights and weekends as we used to. The KWH charge is an anachronistic financial model.

That's an interesting analogy-- obviously there are differences in practice, but the shift in rate model as phone technology advanced very well could be the predecessor to how the utility rate model changes. Thanks for sharing, Mark!

Get Published - Build a Following

The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.

If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.

                 Learn more about posting on Energy Central »