Transmission for Renewables: Opportunity in FERC Order 1000

Claire Kreycik's picture

In the coming years, new long distance transmission capabilities will be needed to deliver increasing amounts of renewable power across the country.

In July 2011, the Federal Energy Regulatory Commission (FERC) issued a pivotal new ruling that reforms transmission policy in efforts to address the aging national transmission system and need for new transmission. This ruling, FERC Order No. 1000, specifically addresses transmission planning and cost allocation methodologies. [1] The changes are expected to remove barriers to the development of new transmission facilities.

Order 1000 is likely to have a positive impact on renewable energy in two main ways:

  • • It requires that transmission plans take into account public policy requirements such as state or federal renewable portfolio standards (RPS).
  • • It prescribes principles for regional transmission cost allocations, which assure that benefits and costs are appropriately distributed. [2]
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Renewables Included in Regional and Interregional Transmission Planning

In FERC's notice of proposed rulemaking (NOPR) proceedings, the commissioners found that previous regulations under FERC Order No. 890 (2007) were insufficient to ensure an open, transparent, and comprehensive transmission planning process. [3] So, in 2011, FERC expanded on that previous guidance.

The new ruling provides public utility transmission providers with clearer guidance on the collaborative processes they need to follow when identifying transmission needs and solutions. Each of the 12 transmission planning regions must produce a plan reflecting solutions that meet the region's needs efficiently and cost-effectively.  All alternative solutions must be studied (even those from nonincumbent developers). When new transmission additions are to span the boundaries of two neighboring regions, FERC requires that regions must coordinate with each other.


Figure 1. Map of 12 Transmission Planning Regions [2]

Additionally, Order 1000 supports renewable energy expansion by requiring planners to consider RPS requirements and other public policy objectives when evaluating needs. The order states that the new transmission plans must fully take into account transmission needs driven by state or federal laws or regulations, like RPS or carbon policies. For example, if a state RPS requires the addition of 1,000 MW of renewable energy over a 5-year period, regional transmission plans must identify all solutions that will accommodate this new capacity.

Renewable resources are often location-constrained; and their resource may be far from existing grid infrastructure. In the west, 11 state governments are engaged in the Western Renewable Energy Zone (WREZ) project , which identifies and prioritizes the best areas to develop transmission facilities to accommodate new renewable generation. The combined efforts of the WREZ initiative and FERC's new regional planning process may help expedite the development of transmission, allowing for more renewable energy development to be brought to Western markets.

 

Transmission Cost Allocation Reforms

After the most appropriate transmission solution is identified, costs must be allocated between parties using the transmission.

Previously under Order No. 890, FERC left determination of transmission cost allocation up to individual transmission providers.[3] Many providers adopted participant funding principles, under which the costs of new facilities are borne by entities that agree to pay for them.[3] In the NOPR, FERC expressed concern that this approach has prevented the development of necessary new transmission facilities, especially those integrating renewable generation that is distant from load centers.[3]

With this new ruling, FERC does not oblige all regions to adopt the same cost allocation methodology. Rather, each region must develop its own method according to a list of six mandatory principles about allocating costs. When transmission facilities span more than one region, transmission providers must develop a mutually agreeable method for allocating between the neighboring regions.

In short, these principles state that a region should transparently allocate costs for transmission improvements according to the benefit bestowed on each of the regional parties. Transmission facilities with high cost but significant net benefits should not be excluded; but, on the other hand, those who do not benefit from a transmission project do not have to pay for it. Different methods can apply to different types of transmission facilities (such as those facilities that are driven by needs associated with maintaining reliability, relieving congestion, and achieving public policy requirements established by state or federal law/regulation).[3] Participant-funding of new transmission is permitted, but it is not allowed as the regional or interregional cost allocation method.

The cost allocation reform is expected to bring more certainty to renewable developers, who are planning new utility-scale projects. These rules may remove some burden on RE developers, since transmission costs must be shared broadly.

 

Conclusion

Through this ruling, FERC maintains its efforts to promote integration of diverse resources into the energy market and foster competition among those resources. Renewable energy demand is expected to be a large driver for transmission upgrades.

Order 1000 removes some barriers to updating the nation's grid infrastructure, but transmission policy reform will not get us all the way there. Transmission build out has proven to be difficult in the past—due to cost, siting, and permitting complexity. Order 1000 will help by ensuring an equitable and transparent process for transmission cost allocation. Under these new rules, large transmission upgrades may have a greater chance of success.

 

Sources

[1] FERC. (2011). "Order No. 1000 – Federal Energy Regulatory Commission."

[2] FERC. (2011). "Final Rule on Transmission Planning and Cost Allocation by Transmission Owning and Operating Public Utilities: Briefing on Order No. 1000."

[3] Bracewell and Giuliani LLP. "FERC Proposes Significant Transmission Planning and Cost Allocation Reforms."