Transmission Expansion for Renewable Energy Scale-Up

1 Transmission Expansion forRenewable Energy Scale-UpEmerging Lessons andRecommendationsMarcelino MadrigalSteven StoftENERG Y AND MINING SECT O R B OARD DISCUSSION PAPER P APER N 2011 The Energy andMining Sector BoardTHE WORLD BANKGROUPAUTHORSM arcelino Madrigal is a senior Energy specialist in the World Bank s Energy Anchor Unit of the Sustainable Energy Department (SEGEN). He has previously held positions at the Inter-American Development Bank and the Ministry of Energy , Energy Regulatory Commission, and Morelia Institute of Technology in Mexico. He holds a , , and in Electrical Engineering with emphasis in Power Systems and Markets Operations and Stoft is the author of Power System Economics. He has consulted for PJM Interconnection and ISO New England and is now a member of the Market Surveillance Committee of the California ISO. He holds a in economics and a in engineering from the University of California at findings, interpretations, and conclusions expressed in this paper are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent.

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3 The World Bank Group. All rights and layout: The Word Express, AND MINING SECTOR BOARD DISCUSSION PAPERPAPER 2011 Transmission Expansion for Renewable Energy Scale-UpEmerging Lessons and RecommendationsMarcelino MadrigalSteven StoftThe World Bank, Washington, DCCopyright 2011 The International Bank for Reconstruction and Development/The World Bank. All rights reservedThe Energy andMining Sector BoardTHE WORLD BANKGROUP 2011 The International Bank for Reconstruction and Development / The World Bank1818 H Street NW Washington DC 20433 Telephone: (202) 473-1000 Internet: E-mail: rights reservedThis volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent.

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5 ViiiforeWorD .. SuMMAry ..xiPArT i: The neeD To ADDreSS Transmission iSSueS When SCAling uP Renewable : eMerging PlAnning AnD PriCing PrACTiCeS ..11. inTroDuCTion .. Background .. The Barriers to Renewable Energy .. Why Developing Transmission is a Challenge to Scaling up Renewable Energy .. Other Challenges Associated with Transmission Not Covered in This Report .. The Need for Scaling up Transmission When Scaling up Renewable Energy .. Findings from Long-Term Needs Assessments in Developed Countries .. Findings from Immediate Investment Assessments from Developing Countries ..92. Transmission CoST AlloCATion AnD PriCing .. Classification of Transmission Needs Triggered by Generation .. Interconnection Cost Allocation .. Overview of Interconnection Cost Allocation Policies and Practices .. Network Infrastructure Pricing .. Overview Network Infrastructure Pricing Methodologies.

6 An Example of the Impact of Transmission Cost Allocation and Pricing ..183. ProACTive PlAnning AnD oTher inSTiTuTionAl ArrAngeMenTS To exPAnD Transmission for Renewable Energy .. Summary .. Proactive Planning Practices and New Institutional Arrangements .. The Philippines .. Mexico .. The United Kingdom .. Texas .. Midwest ISO .. New Technical Planning Options .. Basics of Transmission Planning .. Overall Principles and Methodology of Traditional Transmission Planning .. Overview of Tools to Assist Traditional Transmission Planning .. New Useful Modeling Approaches for Transmission Planning with Renewable Energy .. Risk or Trade-Off Scenario Planning .. Long-Term GIS-Enabled Generation and Transmission Planning with Hourly or Sub-Hourly Resolution .. Methods for Developing Renewable Energy Zones for Planning Studies .. Open and Participative Stakeholder Process to Improve Planning Outcomes and Broad Stakeholder Process.

7 Combined Impact of Transmission Planning and Pricing on Renewable Energy Development ..50ivPArT ii: Renewable Transmission DeveloPMenT: eConoMiC PrinCiPleS ..534. Transmission AnD Renewable Energy , The BASiC TrADe-off .. Different Types of Entities that Provide Transmission Service .. Primary Objectives: The Reduction of Fossil Fuel Externalities .. Interactions Between Renewable -Policy and Transmission Efficiency .. A Pigouvian Tax as a Benchmark Subsidy Policy .. The Effects of Different Renewable Subsidies on Transmission Production Subsidies .. Uniform Feed-in Tariffs .. The Standard Feed-in Tariff .. The Renewable Portfolio Standard .. The Generation- Transmission Basic Trade-Off .. Viewing Transmission as a Renewable Power Source .. Finding the Cost of Renewable Power Produced by a Transmission Line .. Using the Value, V, of Renewable Energy to Solve the Generation- Transmission Obtaining an Estimate of the Value, V, of Renewable Energy .

8 655. eConoMiC PrinCiPleS on Transmission PlAnning .. The Cost-Effectiveness of Extra Transmission .. Defining the Benefit of a Better Renewable Sources .. Developing Transmission Proactively .. Reactive Transmission Investment .. Anticipatory Transmission Proactive Transmission Maximize the Net Benefit of Renewable Transmission .. The Need Planning and for Pricing of Transmission .. A Transmission Planning Example .. Note on Planning for Uncertainty .. Achieving Quantity Goals and Price Targets .. A Note on Variable Output, Congestion, Reliability, and Cost ..776. eConoMiC PrinCiPleS of Transmission PriCing .. Observations on Traditional Principles of Transmission Cost Allocation and Pricing .. Charging Generation vs. Charging Load .. Charging on a per-Megawatt or per-Megawatt-Hour Basis .. Flow-Based Methods vs. Postage Stamp Methods in the Context of Renewable Energy .. Transmission Tariffs Mimicking Competitive Pricing.

9 Fairness to Electricity Consumers .. Increasing the Efficiency of Renewable Generation Why Expansion -Pricing is Approximately Long-Term Congestion Pricing .. Why Expansion -Pricing is Better than Congestion Pricing .. Charging Full Price for Private Lines .. Broadly Allocating Uncovered Transmission Costs .. Summary of a Framework for Proactive Provision of Renewable Transmission ..86 APPenDix A: inveSTMenT ASSeSSMenT By JuriSDiCTion ..87 United States ..87 Midwest ISO ..87 Texas Competitive Renewable Energy Zones ..88 United Kingdom ..88 European Union ..92 Mexico ..94 Panama ..96 Egypt ..97 Brazil ..100 The Philippines ..101vAPPenDix B: revieW of ConneCTion CoST AlloCATion AnD neTWork infrASTruCTure PriCing MeThoDologieS .. Cost Allocation ..105 Spain ..105 Germany ..105 Denmark ..105 United Kingdom ..106 Panama ..106 Brazil ..106 The Philippines ..106 Egypt .. Review of Network Infrastructure Pricing Methodologies.

10 107 Spain ..108 Germany ..108 Denmark ..108 United Kingdom ..109 Panama ..109 The Philippines ..109 Brazil ..109 Egypt ..109 APPenDix C: ToPiCS on Transmission PlAnning: reliABiliTy CriTeriA AnD neW ToolS ..111 BiBliogrAPhy ..117 BoxeSBox : The Overall Transmission Planning Process ..45 Box : Some GIS-Enabled Transmission Expansion Models with Emphasis on Renewable Generation ..48 Box : Site Selection Methodology Midwest ISO Transmission Planning Study ..51 Box : Transmission Cost and Choice of Greenhouse Gas Mitigation Options ..56 Box : Subsidies and Transmission Planning ..59 Box : An Important Note on Measuring the Cost of Transmission ..62 Box : Example of the Basic Trade-Off: Why Building More Transmission Can Easily Save Money ..68 Box : Summary Principles on Transmission Expansion and Pricing for Renewable Energy ..86 Box : PRS-Netplan Model for Designing Shared Networks for Multiple Projects in Renewable Zones.