FERC OKs New Renewable Transmission Project Cost Recovery

By Published On: April 20, 2007

A new financing plan designed to promote the development of transmission trunklines to remote locations and increase access to renewable energy projects was approved by the Federal Energy Regulatory Commission April 19. The move “helps states meet their renewables portfolio standard targets,” said FERC chair Joe Kelliher. The new transmission financing scheme, dubbed “Greening the Grid” by the California Independent System Operator, is a first-of-its-kind financing system for transmission sought by power producers using wind, solar, and geothermal systems. In approving the new financing scheme, FERC reversed its previous position. It acknowledged that there is a quantitative difference between the sites and the transmission needs of fossil and nuclear power plants, and those of renewable power systems, usually located in remote areas. FERC’s decision “establishes a historic new way to accelerate the pace of renewable energy transmission construction in California and perhaps the U.S.,” stated Southern California Edison. It added that the decision allows the utility to move ahead with its Tehachapi transmission project. Concerns about cost and the inability to finance transmission lines to areas with renewable energy resources have been key obstacles to achieving the renewable energy portfolio standards in California. Prior to this week’s decision, new lines to areas such as the Tehachapi Mountains with their abundant wind power potential could be financed only by renewable energy project developers. This new third category of transmission allows utilities to build the lines and recover the costs from ratepayers, breaking a logjam that has stymied many renewable energy projects. “Several hundred gigawatts of cost-effective, inexhaustible, 100 percent clean wind power are now a step closer to being tapped for the benefit of the nation’s economy, environment, and energy security,” said Rob Gramlich, policy director of the American Wind Energy Association. Currently, there are two approved financing schemes for transmission lines. In one system, companies building a short transmission line from a new power plant simply assume the costs as part of their capital investment. The second system involves long transmission interconnections. If CAISO determines that a provider should build a new long transmission project connecting several power plants, it can apply for cost recovery through a transmission access charge. In that regard, it is similar to the fees Baby Bells charged Internet providers for the use of their lines. The expense of these long transmission lines is recoverable because, in the view of CAISO, the new long line enhances the overall reliability of the grid. Renewable energy sources, however, do not neatly fit into either category. The federal body’s approval of the new transmission category came after the California Energy Commission aired concerns at an April 17 workshop about the need to build transmission lines to meet the state’s renewable energy portfolio standard. “Renewables portfolio standard goals are directly dependent on transmission that does not exist,” said Chuck Najarian, Energy Commission transmission evaluation technical lead. Paying for transmission will require regulators, financiers, and utilities to take a more expansive view of what is involved in pursuing renewable energy, many said. “We are really talking about transforming our economy,” said Steven Kelly, Independent Energy Producers policy director. “That’s going to cost a lot of money.” Rather than comparing the cost of renewable energy projects to that of gas-fired plants in the utility power procurement process, Kelly urged utilities to compare green technologies to more expensive nuclear and integrated gasification combined-cycle coal plants. However, FERC’s decision leaves state regulators grappling with remaining financial uncertainties, said Mohamed El-Gasseir, Rumla consultant. Under the new financing plan urged by CAISO, transmission could be rolled into a utility’s rate base as long as the cost of building the new line does not exceed 15 percent of the total renewable energy project cost. El-Gasseir noted, however, that the cap on transmission cost may be too low. Moreover, he said, building transmission to a wind or solar resource area will not necessarily ensure that renewable energy generation projects ultimately are built as planned. As a result, he said, the cost of transmission per megawatt of renewable power produced at the end of a transmission line may be higher than expected when authorized, resulting in fewer benefits to ratepayers than promised.

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