Electrical poles of high voltage in blue sky
Increased Spending on Transmission in PJM — Is It the Right Type of Line?
PJM utilities have increased their spending on transmission in recent years but more so on low-voltage projects that don’t advance large-scale grid decarbonization.
Several reputable grid analyses, including those from NREL, the Department of Energy, MIT, and Princeton, suggest that the United States must expand its electricity grid to capitalize on new, low-cost generation and transition to a decarbonized energy system. One recent analysis from Princeton’s REPEAT project estimates that if transmission expansion does not double its historic pace, more than 80 percent of the Inflation Reduction Act’s (IRA’s) emissions reduction potential will be lost.
According to the EIA, US transmission spending has increased over the past 20 years. Unfortunately, there is widespread concern that much of this is not directed toward the long-distance, high-voltage transmission lines needed to bring affordable, clean energy from remote areas to load centers. Instead, as my analysis shows, investment in at least some regions is focused mostly on low-voltage projects that appear to be more about replacing and maintaining the existing fossil-fuel grid rather than substantially upgrading and preparing it for a decarbonized future.
To better understand this critical issue, I analyzed the transmission spending in PJM, the country’s largest grid operator. My findings, as shown in Exhibit 1, are as follows:
- PJM total transmission spending grew 14 percent since 2014.
- The PJM transmission spending toward maintaining existing transmission lines increased from 42 percent to 83 percent between 2005 and 2013.
- PJM spending on new transmission lines decreased 67 percent since 2014.
In addition, 71 percent of the PJM transmission investment since 2014 has been directed toward low-voltage lines operating below 230 kilovolt (kV) as opposed to 26 percent before 2014. Regulators often do not have sufficient time, data, or staff capacity to review the spending on low-voltage lines (below 230 kV) compared with high-voltage lines with longer timelines. All else being equal, the shift toward investments in low-voltage existing lines limits the funds available for investments in new high-voltage lines needed to connect the cleanest and lowest-cost generation to communities.
PJM’s data shows that over the past decade, transmission owners increasingly focused on projects where they had more control over their development. This trend coincides with the Federal Energy Regulatory Commission’s (FERC’s) approval of PJM’s 2013 Order 1000 compliance filing, which introduced competitive bidding to large, region-wide transmission projects, eliminating the monopoly that utilities previously held over those projects. Instead of regional projects being subject to competition, most proposed projects have been as follows:
- Supplemental projects, which are closed to competitive bidding and automatically awarded to the utility to build (compared with Baseline projects, which are open to competition).
- Transmission Owner (TO) Criteria projects, a subset of Baseline projects, which are developed in response to issues identified by the utility/TO, making them more likely to win the competitive bid (compared with Other Criteria projects, which are developed in response to issues identified by PJM or another independent third party).
- Single Zone projects, another subset of Baseline projects, which are developed within a single utility’s service territory and require less coordination with other utilities (as opposed to Multi-Zone projects, which span multiple service territories).
My analysis of PJM transmission spending across Supplemental, TO Criteria, and Single Zone projects indicates the following:
- The proportion of investment in them increased significantly compared with their alternatives (Baseline, Other Criteria, Multi-Zone) since 2014 (Exhibit 2).
- They are likely to be built at lower voltages, because only 40 percent are above 230 kV as opposed to 85 percent of the Baseline, Other Criteria, and Multi-Zone projects.
- They take less time to build (1–2 years less on average) and have lower cancellation rates (10 to 23 percent lower on average).
By modeling utility financial earnings from the Supplemental, TO Criteria, and Single Zone projects), I find that their faster timelines and lower cancellation rates lead to 16 to 24 percent higher utility earnings than their alternatives (Baseline, Other Criteria, Multi-Zone) on a net present value (NPV) basis (see Exhibit 3 below).
What does this mean for affordable and equitable grid decarbonization? While we absolutely need to spend more money on transmission, we must be mindful about the types of transmission that money is directed toward. If we don’t pay attention to what we build, ratepayers may note unnecessary increases in the transmission portion of their bills for a grid that doesn’t bring cost savings from transporting cheap and clean generation to them. If the current trends in PJM continue, the nation’s largest grid operator might continue to build and support a grid of the past without proactively planning for a grid supporting a decarbonized future. FERC is currently considering tools to enhance the transmission spending oversight, such as an Independent Transmission Monitor (ITM). Similarly, we need more proactive regional and interregional transmission planning based on forward-looking assessments of clean energy deployment. To realize the full potential of the IRA, the lines we build must create the clean, affordable, and equitable grid of the future and not just connect us to the past.