The cost of renewable energy has fallen in the United States, but power transmission remains a challenge.
Over the last decade, the cost of generating solar power has been cut by almost half. The cost of wind power has also fallen by 75 percent, and the cost of generating renewable energy has fallen dramatically. Although this is a good sign for a sustainable future, the difficulties lie in the details: the transmission of energy from source to consumer.
To benefit from all this cheaper, renewable energy, the United States desperately needs better transmission infrastructure, explain Lucas Davis, a professor at the University of California–Berkeley, Catherine Hausman, a professor at the University of Michigan, Ann Arbor, and Nancy Rose, a professor at the Massachusetts Institute of Technology, in a forthcoming article in the Journal of Economic Perspectives.
The authors propose a number of solutions that could speed up the approval of new transmission projects by expanding federal authority and enable better use of existing facilities by modernizing equipment.
Transmission is defined as the “transport of high voltage, large quantities of electricity over medium to long distances”. In the context of renewable energy, efficient transmission is crucial because the various renewable energy sources are geographically unevenly distributed.
Even in more populous states, key power generation sites are often far from urban centers, making power transmission an important consideration, the Davis team explains.
In contrast, conventional power generation plants – which generate energy from coal and gas – can be built near population centers and the fuel can be imported directly into these plants.
As the cost of generating electricity from renewable energy has fallen, the transmission of electricity from renewable energy has become more important. Although transmission capacity in the United States increased by 27 percent between 2005 and 2020, the U.S. still falls short, the authors argue, because transmission capacity is not evenly distributed enough to adequately meet demand.
Davis and his co-authors show that curtailment rates—the deliberate reduction of energy production when the amount supplied exceeds the amount demanded—have increased in recent years. Davis, Hausman, and Rose also explain that wholesale electricity prices in markets with renewable energy generation often fall below zero, meaning that the amount supplied in these markets often exceeds the amount demanded.
With improved transmission capacity, renewable energy developers could sell their excess power to other locations when their local market is at capacity, reducing the need for power curtailments while keeping the wholesale price above zero, the Davis team argues. This approach could help balance supply and demand imbalances, they explain.
However, Davis and his co-authors identify a number of challenges to large-scale transmission grid development in the United States.
The United States electric grid is not a single system, but rather consists of a decentralized group of local utilities, each with a monopoly on its territory. The utilities are overseen by regional organizations responsible for managing the flow of electricity in the area. There are more than 50 of these regional balancing authorities in the United States.
While local utilities trade power among themselves and on organized wholesale markets, balancing authorities oversee the markets and enforce U.S. Energy Regulatory Commission rules. The country is also divided into three major “interconnected grids” between which electricity is essentially impossible to transmit.
However, the authors explain that balancing authorities tend to focus on ensuring reliability rather than expanding transmission capacity.
Decentralization of the electricity grid creates incentives for utilities and electricity sellers to avoid cooperating, the authors argue. Moving energy from a low-price area to a high-price area benefits consumers by expanding supply and lowering prices. As the Davis team argues, electricity sellers in the receiving area will resist this move because lower prices mean lower profits. Regulated utilities that hold local monopolies do not have strong incentives to push this and lower prices for their customers because they face no competition.
In addition, the expansion of renewable energy transmission is associated with regulatory challenges.
Before building a transmission project, project developers must obtain approval from federal and state agencies. Federal laws such as the Clean Water Act, the Endangered Species Act and the National Historic Preservation Act can all apply. Projects that cross federal land must meet the requirements of the National Environmental Policy Act. These laws add complexity, say Davis, Hausman and Rose.
Local opposition to energy projects also presents political challenges, Davis and his co-authors point out. They point to successful local campaigns that rejected power lines in Maine and New Hampshire.
These opponents often focus on site preservation and the negative visual impacts of renewable energy sources, among other concerns. Although the benefits of power lines are widely shared, complaints about land use usually focus on local communities.
Given these challenges, Davis and his co-authors turn to possible solutions.
They are first considering the possibility of expanding federal authority. First, some solutions have already been proposed by U.S. Senators Chuck Schumer (DN.Y.) and Joe Manchin (DW.V.). They propose simplifying the procedures of the National Environmental Policy Act and streamlining coordination between multiple agencies.
Second, the bipartisan Infrastructure Act of 2021 and the Inflation Reduction Act of 2022 gave the Federal Energy Regulatory Commission the authority to approve transmission projects over state objections. However, Davis, Hausman and Rose note that exercising these powers could face criticism from state regulators.
The Davis team also identifies some opportunities to improve transmission without building new lines.
For example, projects could focus on upgrading high-voltage lines in existing transmission projects, thereby avoiding the need to obtain permits for new projects.
In addition, further investments by public utilities in battery storage could meet immediate transmission line needs.
Finally, increased U.S. government support for research and development of these technologies could lead to cost reductions and improved efficiency.
The dramatic decline in the cost of generating electricity from wind and solar power is a positive sign for a carbon-neutral future, say Davis, Hausman and Rose. But power transmission is also an important part of the electricity supply chain. Davis and his co-authors argue that legislation and further investment are essential if the United States is to fully exploit its increasingly abundant supply of clean energy.
