Can new transmission tech boost capacity and save billions? Two proposals aim to find out

Source: By Herman K. Trabish, Utility Dive • Posted: Tuesday, December 3, 2019

Advocates are pushing a “shared savings” approach to incentivize deployment, but system operators have doubts.

New grid-enhancing technologies (GETs) have been shown to cost-effectively increase the power existing transmission lines can carry and the services they can provide without compromising reliability, advocates, including former Federal Energy Regulatory Commission Chair Jon Wellinghoff, said at a Nov. 5-6 FERC workshop on the technologies. But the technologies’ supporters want to replace the incentives that have so far driven limited deployment.

“These new digital technologies can do for the transmission system what smart meters did at the distribution level,” Wellinghoff, now CEO at GridPolicy Consulting, told Utility Dive. “But they aren’t being deployed because transmission developers have no incentive to use them. New proposals would change that by giving developers a share of the savings GETs will deliver.”

GETs’ high-speed awareness of system conditions has increased system capacity, efficiency and reliability at relatively little cost or risk, advocates said during the workshop. But only wider deployment will address system operators’ limited experience with them. That is why technology providers and transmission owners asked FERC commissioners to consider a little-used performance-based incentive called “shared savings.”

System operators expressed almost unanimous concern that “shared savings” will add an extra layer of complexity to the deployment of new transmission, while also noting that reliability would be threatened by deployment of new optimization software. But they offered no fully conceived alternatives that will provide the potential benefits that advocates say GETs can deliver.

More power from old lines with new technologies

GETs’ digital monitoring and control of the 7 million mile U.S. transmission-distribution system could save customers an estimated $2 billion per year, the WATT Coalition of advanced transmission technology advocates and vendors reported in March 2018. GETs can also add vital flexibility to a power system with rising penetrations of variable and distributed renewable resources.

Three types of GETs are key, advocates told the FERC workshop. One is Power Flow Control, which prevents outages and relieves congestion by rerouting energy away from overloaded lines. Pilots have demonstrated line flow reductions without reliability compromises.

Dynamic Line Rating (DLR) incorporates monitoring devices that read, or rate, a line’s actual capacity which is greater than system operators’ assumptions 95% to 98% of the time, DLR provider Genscape told Utility Dive. The more accurate reading leads to decreased local congestion, which has saved near-term generation costs and long-term transmission system upgrade costs in pilots.

Topology Optimization software automatically reconfigures power flow around congestion and distributes power more evenly over the system to increase energy throughput. It can generate tens of millions of dollars in cost savings in annual congestion reductions, a 2018 Brattle-NewGrid study found.

“The objective is to get these technologies into the market and get the market moving.”

Rob Gramlich

President, Grid Strategies

Many factors contribute to a limited deployment of GETs despite these proven benefits, but two are dominant, Wellinghoff said. One is institutional inertia. The other is that traditional incentives don’t reward regulated utilities and other entities for relatively low-cost software that optimizes the system, but do reward them for “earnings based on expenditures on capital intensive infrastructure.”

To accelerate GET deployment, alternative incentive structures were proposed by the WATT Coalition and former Chair Wellinghoff during an October FERC workshop on GETs.

What GET advocates want

GETs are now proven, ready for large-scale deployment, and can deliver benefits “ranging in the tens to hundreds of million dollars per year,” WATT Coalition spokesperson and Grid Strategies President Rob Gramlich told the workshop.

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The new performance-based incentive could produce large-scale deployment, Gramlich said. A “shared savings” approach would allow transmission owners to keep a portion of the savings from congestion reductions created by GETs. Savings could be calculated by system operators with tools and methods now used for other studies.

“The objective is to get these technologies into the market and get the market moving,” he added. Under WATT’s proposal, GET project costs eligible for shared savings would be capped at $25 million to limit risks to consumers, and if a system operator-authorized GET deployment’s benefits exceed its costs, the transmission owner could earn a 25% share of the savings.

FERC has the authority to provide this incentive under the Energy Policy Act of 2005, Gramlich told the workshop.

Under Gramlich’s proposal, two key features address system operators’ reliability concerns and provide compensation certainty for transmission owners. The transmission owner “is required to comply with all FERC reliability standards.” And the estimated incentive amount does not change if market factors like natural gas prices change, because no transmission owners wanted that uncertainty, according to Gramlich.

The Wellinghoff proposal is a similar performance-based shared savings incentive. Unlike the WATT plan, it is independently administered by the regional grid operator and re-evaluated every three years, Wellinghoff said. And “the bid amount for the actual installation is a fixed amount, with no cost overrun allowance.”

Most importantly, his proposal is “competitive” because it allows the project developer to bid an incentive of anything from 0% to 50% of the calculated savings, he added. “Under my proposal, a developer could bid to put in a technology at a certain cost and a specific percentage of the savings” and “the bid that has the highest net consumer benefit gets the project.”

FERC’s Order 679 is another avenue that could allow it to establish incentives for GETs, possibly requiring FERC to revise the order’s requirement that incentives be based on a project’s financial “risks and challenges” rather than its benefits, Gramlich and Wellinghoff agreed.

Reactions among stakeholders on the workshop’s panels were diverse. Most agreed there is value in GETs but also foresaw complexity in implementing new incentives.

Stakeholder doubts

Transmission owners in the workshop found positives and negatives in shared savings.

“The WATT framework and sharing concept can move the ball forward on innovation, but does not pick winners and losers,” American Electric Power Vice President for Transmission Planning Robert Bradish said. But details on how costs are determined are “fuzzy,” which makes potential impacts uncertain.

GETs “have not proven cost-effective” and may not “meet all types of transmission needs,” Exelon Senior Vice President for Transmission Policy Michael Kormos said. “Some of the challenges may diminish as the costs of these new nonconventional technologies fall, but others are likely to persist.”

GETs do not meet reliability needs as effectively as conventional transmission infrastructure, but they can provide “a narrower scope of benefits,” he added. “Shared savings can work, but when you move that model into a competitive environment such as PJM, it’s going to fall apart very quickly” because it requires resolving details of cost and benefit forecasting that may not be predictable.

System operators largely endorsed the value of GETs but raised doubts about the need and practicality of shared savings.

New technologies are being deployed, but not without stress on system operators’ “ability to adapt processes and tools to integrate them,” Midcontinent Independent System Operator Director of Research and Development Jessica Harrison said.

GET is “a set of tools” and system operators are working to understand the technologies, their applications and the market maturity of both, she added.

California Independent System Operator (CAISO) Executive Director for Infrastructure Development Neil Millar, New York Independent System Operator (NYISO) Senior Manager for Transmission Yachi Lin, and Southwest Power Pool (SPP) Vice President and General Counsel Paul Suskie made similarly cautious observations about the general trends of GETs on their systems.

There is significant uncertainty about forecasts, especially long term, of future congestion or savings from reduced congestion, they agreed.

“If you push the technology and the lights go out, the politics are going to quickly turn against that technology.”

Paul Suskie

Vice President and General Counsel, Southwest Power Pool

Previous GETs proposals required California’s system operator to “get multiple consultants to help us understand how to evaluate these technologies,” CAISO’s Millar said.

GET deployments come with “many factors that could impact performance, which means studies to identify the differences and conditions of how they perform will be needed,” NYISO’s Lin said.

“We have to remember it’s the reliability of the grid that is central,” SPP’s Suskie said. “If you push the technology and the lights go out, the politics are going to quickly turn against that technology.”

FERC’s policies and incentives were not designed to address new technologies, so do not “get at the fundamental financial realities” that GETs introduce, and work against GET deployment, ​PJM Interconnections’ Vice President for Federal Policy Craig Glazer acknowledged.

But the uncertainties of shared savings — particularly how they are estimated — could provoke stakeholder litigation that would also be a barrier to deployment, he added. The need is for FERC policies that lead to GET proposals and pilots and a clear record of performance to base incentive decisions on. “What we don’t need is another process with more tariff rules that could fail to solve the problem” of deploying advanced technologies.

Shared savings ‘not reasonable’

The most articulate and forthcoming critics of the shared savings approach were system operators’ market monitors, who rejected them as not market-oriented enough.

“The fact that GETs are not already well-established in U.S. wholesale power markets is evidence that the cost of service paradigm is not working,” Monitoring Analytics President Joseph Bowring said. To support deployment, FERC should use “a regulatory approach that relies on Commission directives when appropriate and, to the maximum extent possible, relies on competition and market incentives.”

Shared savings are “not reasonable” because they require “ongoing real time counterfactual analysis of what price differences would have been, or how the markets would have cleared” without GETs, he added. Cost-benefit analyses for GETs are “speculative” because GETs “can affect the market in unpredictable ways, including higher costs for some customers and lower costs for others.”

“[T]here are elements of a solution that FERC has authority to move forward on that would be a win-win for several entities.”

J.Z. Gailani

Staffer, FERC

Congestion reduction metrics are too dependent on multiple changing factors that make it “virtually impossible” to identify the impacts of individual or combined GET investments, Bowring said. “We should have a marketplace solution, and doing it right is complicated, which is why the commission should issue a statement of its intentions on support for GETs as an interim step.”

FERC should “embrace market-based investment,” Potomac Economics President David Patton agreed. The WATT proposal’s “old school approach” delivers “weaker incentives than a market-based approach” and “places investment risk on customers, rather than the investor who can best evaluate and manage the risk.”

Shared savings projections beyond five years “are almost worthless because they are based on so many assumptions,” he added.

Picking the right incentive

GET impacts on congestion can be and are accurately measured, Wellinghoff said. System operators regularly determine proposed project cost-benefit ratios by comparing the energy cost at a load pocket where the system is congested to the reduced energy cost at that node when congestion is relieved. “That is congestion savings.”

But concerns are reasonable about the uncertainty in the long-term calculations because “grid conditions are always changing,” he acknowledged. “That’s why my proposal re-evaluates the shared savings every three years.”

The commission is unlikely to issue a mandate for GETs “because that requires picking the right technologies,” Gramlich said. But “shared savings requires picking the right incentive, and that is what the commission is supposed to do.”

“Comments have ranged from do nothing to do something that may work to let’s change the whole system,” FERC Staffer J.Z. Gailani summarized said at the end of the workshop.  “But there are elements of a solution that FERC has authority to move forward on that would be a win-win for several entities.”

FERC commissioners were observers but not participants in the workshop process. Informed by the stakeholder presentations and subsequent filings, they are expected to rule on ways to advance GETs in early 2020, after new members are seated.