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Rethinking New Transmission For Renewables

June 2, 2009 - Ralph Izzo - The Energy Daily.com

The governors of 10 eastern states, many with strong records on environmental policy, recently sent a message to Congress that turned some heads. It focused on proposed legislation to create an electric transmission superhighway to bring wind power from the Midwest to cities on the East Coast. Who could be against that?

These governors are, it turns out. They warned that such a project would impact their statesí ability to develop renewable energy close to cities where the power is needed. Some environmental groups are even having second thoughts.

At PSEG, we agree with the governors, for three principal reasons:

Cost: Such a project would force uneconomic decisions in the building of electric generation and transmission.

Job creation: Encouraging renewable energy projects in the Midwest will hamper the ability to create jobs for such projects on the East Coast. This may be a zero sum game nationally, but the local economic effects matter. We need a balance.

Environment: In addition to giving unfair advantage to development of renewable resources in the center of the country, the proposal would open the way for delivery of substantial coal-fired generation to the East Coast.

To be clear, we need policies that encourage wind and solar everywhere, including places like New Jersey. And we do need to build transmission where it makes sense for connecting new resources and maintaining a reliable electric network.

The most effective way to minimize costs to develop renewable resources would be a national renewable energy standard (RES). A federal program would create economies of scale and reduce the cost of capital once developers can rely on a stable national market.

New Jersey has a RES that requires 20 percent of the stateís electricity to come from renewable resources by 2020. As a result, our company has begun to invest hundreds of millions of dollars in wind and solar projects within the state and off our coast. We also buy renewable power in our region. And we should buy renewable power from outside our region if it is cheaper.

This gets us to the major issue around the superhighway proposal-cost. Obviously, the cost of wind energy generated in Nebraska and delivered in New Jersey should reflect the cost of transmitting the energy 1,200 miles across the country. This is no small matter when you consider that transmission lines can run $8 million to $10 million a mile in some parts of the country.

What irks the northeastern governors is a methodology that would charge electric customers across the country for the cost of any new transmission. The result is to provide a subsidized highway for generating resources to get their electricity to market. While such a scheme would certainly encourage the development of renewable resources, it would also mask the true cost of those resources.

To determine which resource makes more sense, we need to compare the cost of generating and transmitting the electricity from the generation source to the consumer. The superhighway proposal, with its cost-spreading methodology, washes out the cost of the transmission in making this comparison.

This scheme will also likely cause more transmission to be built than is actually needed because of the spreading of costs to all electric customers in the country. Thatís because there would not be a meaningful economic test applied to determine where and how much transmission should be built.

Building transmission for transmissionís sake does not make sense. Nor does it make sense to build transmission solely for renewable resources, because of their intermittent production nature. A typical wind turbine operates about a third of the time, and solar generation typically operates 10-15 percent of the time.

It is telling that the political muscle behind this superhighway proposal comes not just from wind and solar developers from the nationís interior, but also from traditional power companies, which see an opportunity to sell more electricity generated with traditional resources.

The good news is that Congress is starting to hear this message. But this remains a high-stakes fight, very much in flux. If we want to encourage more renewable resources, we have proven tools, like a RES and investment and production tax credits. They encourage green projects where they make the most economic senseóall costs considered.

óRalph Izzo is chairman, president and chief executive officer of New Jersey-based Public Service Enterprise Group (PSEG).