Profiting from Transmission Investment

A holistic, new approach to cost/benefit analysis.

The still-fresh memories of last year's Northeast blackout coupled with rising congestion nationwide have increased awareness of the electric transmission investment shortfall in the United States. Such investment, in the right locations, would have a highly positive benefit-cost ratio. But how much should be spent?

To answer this question, ICF Consulting recently conducted a holistic forward-looking analysis of transmission investment, assessing transmission along with new generation, plant retirement, and load management options.1 We integrated all factors affecting power production and delivery, including air emissions requirements, fuel market dynamics and expected prices, power plant economics and financing, costs of congestion, and network reliability. We also provided a new application of the value of lost load (VoLL) to electric transmission as a recommended means for assessing future transmission benefits.

Insufficient transmission capacity can impose costs on consumers in several ways, by:

Creating transmission "islands" and preventing sharing of generation reserves, so isolated markets must carry excessive reserves;

Raising the capital costs of generation in isolated markets (, New York City);

Compelling the mothballing of less expensive generation due to inaccessibility;

Making consumers in congested markets pay more for power at times; and