FERC 2023 and other recent reforms are encouraging steps to help the US power grid adapt to the energy transition. However, the risks to project developers remain high with the large costs required to interconnect. To examine these challenges, I’m writing a new series on strategies developers can employ to minimize the downsides when selecting their project sites. But before that, I want to walk through the core problems that are straining the grid.
One factor is the increase in power demand forecasted in many regions of the country. The current transmission infrastructure was built for the market conditions that have existed over the last 15-20 years, when demand growth was flat in many parts of the country. This has only recently been reversed with new manufacturing, data centers, EV adoption, and other new sources of demand. The transmission planning in most regions was geared around reliability updates and small areas of growth rather than widespread areas of growth. The supply chain of high voltage equipment was also set up for much lower demand.
Another source of the need for new infrastructure is the location of generation. Fossil fuel and nuclear plants are generally located within 100 miles of a major city to minimize the distance the transmission lines need to run to connect to the load. Large scale renewable energy generation by contrast is sited based on the availability of land and the energy resource, which can be much farther away. If all else is equal, 1 GW of power generated 200 miles from the load requires twice as much transmission line infrastructure (conductors, towers, etc) as 1 GW of power generated 100 miles from load. Even if demand were flat, the transition to renewable energy would require a significant transmission build-out. The CREZ line in Texas is a good example of this change being handled in a proactive way.
The adoption of more renewable power generation also means there will be significantly more points of interconnection for generators. As more renewable energy is adopted, the average size of a generator will go down and the capacity factor will also go down. The effect on transmission infrastructure means more substations and short distance high voltage lines will be needed compared to the status quo.
One positive effect of the energy transition on infrastructure is the reduced need to transport fuel to the generator. Coal power requires railroads or barges and natural gas power requires pipelines. In thinking about the costs of new transmission infrastructure, it’s important to bundle the public end of the costs of fuel delivery into the overall bucket. Despite this effect, the overall need for new energy infrastructure is high. Developers must adapt to these conditions and find project sites that minimize interconnection costs and risks.
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