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High Wire Act

Electricity Transmission Infrastructure and its Impact on the Renewable Energy Market

This report examines electricity transmission developments and challenges for renewable energy in the European Union (EU), China, and the United States.

Key Findings

Executive Summary

Renewable energy (RE)—electricity from wind, solar, and other naturally renewing energy sources— has drawn increasing attention in the quest to reduce greenhouse gases on a scale commensurate with the dictates of climate science. Renewables have the potential to substitute for a significant proportion of the conventional fossil fuels prevalent in today’s electricity generation. However, two key features of renewable energy complicate this promise. First, renewable energy resources are location constrained and often available only in remote areas. Their energy must therefore be transported via connected transmission lines (the grid) to demand centers, such as cities. Second, because RE resources are typically intermittent, this energy must be stored or managed with other generation sources to provide a stable and reliable service to consumers. One effective way to address this intermittency is widespread interconnection to diverse resource areas so that low production in one location can be balanced by high production in another. These two important attributes, location-constrained generation and intermittency, mean that transmission is critical to unlocking the promise of renewable energy.

About this Paper

This paper examines transmission developments and challenges in the European Union (EU), China, and the United States—three regions that present entirely different pictures in terms of governance structures, institutions, and traditions for making decisions about transmission.

Transmission infrastructure can be either a roadblock or an enabling technology for meeting renewable energy deployment goals and thus presents a poorly understood risk to RE investment. To provide context for renewable energy investors, this report examines the policy challenges of providing transmission to:

  • Move electricity from large-scale renewable energy generation in remote areas to distant demand centers; and

  • Facilitate regional grid interconnections necessary to manage intermittency. Because transmission is highly dependent on government decisions at both the political and administrative level, this paper emphasizes the regulatory trends in transmission that in turn affect renewable energy investments.

Table 1. Incentives Driving Transmission Action
RE GoalsCoordination EffortsInnovations
European UnionEU Renewable Energy Directive (June 2009) sets goal of 20 percent power from RE sources by 2020 and mandates grid connectors to provide access to new RE to achieve EU climate policyThe European Network of Transmission System Operators for Electricity (ENTSO-E) and the Agency for the Cooperation of Energy Regulators (ACER) have transmission coordinating missionsEU Priority Projects defined and assigned an EU coordinator to push the project forward
ChinaRenewable Energy Law (2005, 2009) obligates power grid companies to connect all RE generation sites that fall in their grid coverageRenewable Energy Law Amendments (2009) require coordinated RE and transmission planningDevelopment of UHV infrastructure with $59.7 billion in investment
United StatesThirty-one state Renewable Portfolio StandardsFederal efforts encourage regional transmission planning, though there are no requirementsInnovative cost allocation resolutions such as the Tehachapi and Southwest Power Pool projects
Table 2. Roadblocks to Sufficient Transmission Action
Local InterestsCosts
European UnionTransnational coordination and enforcement powers of EU institutions remain unproven while local opposition to large-scale infrastructure projects is significant in some areasTransmission investment will be difficult in an era of austerity and slow economic growth
ChinaDisagreement between the grid operators and wind developers on technology standards and planning complicate RE generation connectionVast distances between generation and load sites and chronic grid congestion necessitate massive transmission expansion
United StatesWeak jurisdictional coordination in the transmission siting and approval process slows or stops transmission projectsTransmission cost allocation issues remain largely unresolved or are resolved at local level, reflecting narrow local interests

Looking Forward: Signposts for Investors

Transmission siting and construction in general may be marginally easier to approve in the EU than in the United States; therefore, RE expansion may be more likely if the current European cooperative efforts succeed on schedule by 2014. This will depend on whether the controlling nature of the relevant EU directives and policies can prevail over local interests in practice. The potential generation that could be unlocked through transmission expansion in the United States and China may, however, be relatively greater, due to the large domestic tracts of land with significant RE generation potential that are currently inaccessible because of transmission constraints.

These opportunities could prove tougher to capture in the United States as a result of difficult-to-resolve regulatory and political uncertainties. If reform efforts bring greater certainty to the United States, investors will be able to respond and shape renewable energy projects accordingly. Even if not all roadblocks are addressed with legislation or regulatory reform, any increase in certainty regarding transmission siting coordination, cost allocation, and national energy policy would unlock new potential in the United States. Perhaps the market most likely to remove transmission barriers and unlock the real potential of RE is China, as the central government methodically works to reform transmission to support its national renewable energy goals. China faces primarily technical and capacity barriers rather than the paralyzing political debate seen in the United States. China’s future market depends on its ability to overcome the resistance of grid companies in a regulatory environment that at least appears more opaque than those in the United States or EU.

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