Transmission Investments Reduce Power Costs
and Improve the Economy
A recent ICF International study, sponsored by KKR & Company, shows that targeted investments in transmission, in conjunction with the right mix of generation, could reduce the wholesale costs of power by 1.5 times its costs.
Further, if we include potential benefits from lower reserve margins, the benefits rise to over twice the cost.
Finally, if we include the benefits to the U.S. economy due to lower transmission-related outages from these investments (also called "value of lost load"), then these investments return more than 8 times their cost. When calculated on a current per-customer basis, the net present value of the savings would range from $30 to $450.
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I. Introduction and Executive Summary
ICF International (ICF) is pleased to provide this white paper analyzing the need for electric transmission investment in the United States. Under contract to Kohlberg Kravis Roberts & Co. (KKR), ICF International has prepared this analysis to contribute to the public debate about the appropriate level of such transmission investment.
It is a challenging time with regard to electric transmission. For the past few years, many analysts and policy makers have called for increased investment in the grid. With increasing demand for power and little new transmission investment, it has been clear for several years that the transmission network was becoming overloaded. For example:
- The North American Electric Reliability Council (NERC) reports that power deals not fulfilled due to transmission constraints (also known as Transmission Loading Relief, or TLRs) increased five-fold to nearly 1,500 instances in 2002 compared to 300 in 1998.
- According to the Edison Electric Institute (EEI), transmission investment fell $115 million per year for 25 years, from about $5 billion in 1975 to $2 billion in 2000 (in 1997 dollars). In the same period, investment in generation increased by hundreds of thousands of megawatts, placing increasing burdens on a slow-growing network.
- The cost of transmission congestion in the most developed market in the U.S., the PJM serving the mid-Atlantic region, grew eight-fold in the past three years, reaching $401 million in 2002. The overall cost of congestion is in the billions, amounting today to several percent of the national bill for electric power. In addition to increasing costs, congestion acts somewhat like cholesterol in the body, causing flows to be constrained, increasing stress on the system, and contributing to the likelihood of a breakdown.
- In its “National Transmission Grid” study in 2002, the U.S. Department of Energy identified the major power corridors that were congested, with some at their maximum capacity more than 80 percent of the time. This is equivalent to having rush hour on these critical arteries of the power system nearly all year long.
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Download full Executive Summary on The Costs and Benefits of Investing in the U.S. Transmission Grid
Learn more about ICF International's transmission consulting services. For inquiries and brochures, contact us at energy@icfi.com or 1.703.934.3637.
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