The Economic Case for New Transmission in the United States: Meeting the Need for Large-Scale Wind Energy

Abstract

Recent years have seen a large increase in both the supply of and the demand for renewable energy. Among non-hydro renewable technologies, wind generation has gained the largest share due to its relative maturity and lower cost. In 2008, 8,300 MW of wind generation were installed, making wind generation the largest source of energy capacity investment in the United States. However, even with the recent large increases in wind generation investment, many of the nation’s best wind resources have seen little development due to transmission constraints. As a result, large increases in transmission investment will be needed in order to increase wind generation’s role in the nation’s energy mix. Our paper evaluates whether large investments in transmission infrastructure to reach high capacity factor wind resources are justified. We examine the cost of wind generation and transmission and compare that cost to the cost of natural gas generation without transmission. Natural gas generation provides a suitable comparison as it was the second most installed generation in 2007, and similar to wind generation, it often fulfills an intermediate load position in a region’s energy mix. Using a single variable analysis, we identified specific cost drivers that impacted the cost of wind generation plus transmission and natural gas generation. Our study found that the length of transmission line, voltage of transmission line, load factor of transmission line, and site wind capacity factor have the largest impact on the cost of wind generation. Additionally, in many scenarios, wind generation is cost competitive with natural gas generation. However, under current conditions, we also found that accessing distant wind resources is not the most cost competitive option due to the high transmission costs. Therefore, we recommend policies that reduce transmission costs, improve the competitiveness of wind generation and share those costs across all stakeholders. Such policies include the creation of high voltage transmission networks, increasing transmission load factors, limiting integration costs, providing continued tax credits, and putting a price on carbon dioxide emissions.