Speaking at TransmissionHub’s TransForum East, Thumm said that the plan is purported to be a game-changer for the industry with large changes in generation portfolios, resource fuel mixes and an aggressive compliance timeline.
Noting the difficulty in planning a transmission system while not knowing which generation sources will retire, for instance, he said that only when the state implementation plans have been finalized as to what their individual approaches will be for Clean Power Plan implementation can companies like ITC and others “realistically approach a transmission solution to specifically implement the policy shift.”
Thumm also noted that the final rule pushed the interim compliance period to 2022, which “gives us a little more breathing room with respect to transmission development. If we’re successful in working with the states while the state implementation plans are developed, we may have the opportunity to begin to work on some meaningful transmission projects, but bear in mind, transmission planning takes years to complete from conception through regional planning processes, to state siting and then ultimately to the construction phase.”
Factors that may help drive transmission investment include the desire to shutter coal power plants, and a strong policy push toward deployment of renewable resources, he said.
Thumm also noted that policy makers have long encouraged a shift toward renewable resources and ITC has been proactive in accommodating generator interconnections of that sort. ITC has more than “5 GW of installed wind capacity on our network, 1.5 GW is being built, another 4 GW is in the RTO queues,” he said.
The Clean Power Plan, as well as FERC Orders 888 and 890 and relatively recent blackouts in the Midwest, California and Florida, along with such events as the polar vortex, “are all pieces of a larger puzzle,” he said. “How do we design a transmission grid that can accommodate not just the past problems, not just today’s issue, but also anticipate the needs of the future – let’s call this, the grid of the future.”
That grid should be resilient enough to handle not only the everyday challenges in states, but also the new environmental policy challenges that get introduced, he said.
“If we’re able to articulate a vision for what that grid of the future looks like, we can begin to construct it in stages, building the necessary components to support the current initiative,” he said. “If we need $3 billion of investment to accommodate the Clean Power Plan, well, we build that portion of the grid first. When we get to the next challenge a few years from now, we can look again to see if additional infrastructure investment is required, all within the framework of what we thought may have been a $15, $20, $50 billion dollar grid.”
Investment in the grid is critical, Thumm said, adding that sufficient transmission capacity will be needed to ensure continued reliability and security of the bulk power system during the transition from different resources.
“Looking only at the Clean Power Plan and other current policy drivers is a problem that holds our industry, and in fact, the nation back – short-term, case-by-case thinking about energy policy,” he said. “The Clean Power Plan is significant, but it’s a narrow lens into the broader needs of a modern, future grid.”
He added: “We need to have a larger discussion about a long-term energy vision for the country that not only invests in the changing generation mix, but priorities, including aging infrastructure, system reliability, security, emerging technologies and efficiency programs. Let’s articulate where we want to be in 25 years [and] 50 years – a clear goal with a common understanding that everyone can build toward. Otherwise, the Clean Power Plan is a train wreck in slow motion waiting to happen.”
He said it is important to understand what regional transmission modifications will be needed to support the changes.
“Whatever form compliance activities take, this is the time to think broadly about how regional grid planning can accommodate those changes,” Thumm said.
Some states have more identifiable steps to take for compliance than others
Also speaking on the panel, Michael Ferguson, associate director, Ratings Services, with Standard & Poor’s, said that it is expected that the concept of carbon trading is going to be reinvigorated by the Clean Power Plan.
“Now, the exact form of that is currently unknown,” he said, adding that such questions include whether the form will be in a carbon tax or carbon fees.
“[I]f this is intended to be a market-based approach that can reduce carbon and can create incentives to reduce carbon, we suspect that there is going to be a cost attached to that in some way or another in most states,” he said.
It is also expected that certain states are going to have more stringent renewable standards in order to comply with the Clean Power Plan, particularly states that have not had such standards in the past. Ferguson also said that energy efficiency and demand reduction are expected to be a large component in reaching compliance.
There are large, regional impacts associated with the plan, he said, adding that some states have identifiable steps that they can take to comply and potentially be in over-compliance with the Clean Power Plan. For instance, if California reaches its 50 percent renewable standard, “by our calculation,” it will comply with its 2030 mandate, Ferguson added.
As noted in his presentation, he said that the Clean Power Plan will lead to coal generation in the United States dropping from 39 percent to 27 percent within the next decade; renewables constituting over 30 percent of U.S. generating capacity within about 15 years; and distributed generation continuing to grow.
On what that means for transmission providers, Ferguson said that “this is largely positive.”
The U.S. grid is changing “from being your grandfather’s grid” being supplied by coal plants, for instance, to “a more intermittent grid – it’s a less, inherently, reliable grid – and that has to be addressed somehow,” he said, referencing the growth in renewables and distributed generation.
Among other things, he also discussed the various regions in the country, including New England, saying that a good amount of transmission is already being built there.
“[W]e suspect there will be more renewables in New England and potentially, there’s going to be opportunities to transmit more and more power from remote locations,” he said.
Growth in renewables will “require building some complementary back-up capacity and that in and of itself requires the building of new gas infrastructure in New England, which has been notoriously constrained,” he said.
Of the Midcontinent ISO, he said, for instance, that states in that region that have a heavy coal contingent may become more concerned about reliability as they move towards the compliance period, if they rely more on intermittent assets.
“[I]f that happens, reliability is going to be an issue and I suspect that there would be a necessity to build a stronger capacity construct, which could invite new entry into the market, which could invite new transmission into the market, depending on where it is that you’re sitting, but certainly, the presence of more and more renewables will also demand building out transmission,” he said.
Among other things, he said that while it was not unexpected that ERCOT was one of the more vocal opponents of the Clean Power Plan, it was a bit vexing in some ways as Texas, with its abundant wind resources, is in many ways well suited to comply with the plan.
Also speaking on the panel was Elliot Roseman, vice president, ICF International, who said that there is a lot of opportunity for electric transmission with regard to the Clean Power Plan.
As noted in his presentation, EPA projects coal retirements by 2030 to rise about 50 percent. Referencing the EPA’s projections, Roseman said that there is an anticipated baseline of about 60 GW of coal retirements, adding, “[D]epending on whether you take … the mass approach, which means a total number of tons that you’re trying to achieve of emissions, or a rate approach, which is pounds per megawatt-hour approach, there will be different impacts, but … [by] 2030 … you’re looking at an incremental 20-plus GW, possibly 30 or more GW of additional retirements of coal generation that would result from the implementation of the Clean Power Plan.”
Besides the Clean Power Plan, a lot of other factors are affecting the coal fleet, including low gas prices, aging infrastructure, low load growth and the proliferation of distributed energy, Roseman said.
He also noted that the older and smaller the plants are, the more likely they are to retire.
On states’ compliance with the Clean Power Plan, his presentation noted, for instance, that states that submit mass-based plans must address the leakage of emissions from existing generation to new source generation. According to the presentation, the EPA gives three options to mass cap states:
· Include new sources in cap with New Source Complement
· Allocate from set-asides to renewable energy and affected natural gas combined cycle generation
· Demonstrate that leakage is unlikely
Roseman noted: “As you take the coal plants out of the grid, or as you add new gas-fired generation in different places, there are considerable transmission implications. In fact, in states with a lot of coal, the mass approach leads to generally more coal retirements and is better for transmission. More transmission would be developed than would be otherwise under the mass approach.”
His presentation also addressed distributed energy resources, noting, for example, that DERs are challenging utility networks, operations, finances and business models, and will do so more as they grow in the coming years. Also, the cost of numerous renewables and storage are dropping precipitously, and ICF expects nearly all new generation to arise from gas and renewables, according to the presentation.
As to where the industry is headed, his presentation noted that key state decisions are coming up on the Clean Power Plan and the industry should “work with states to make ‘the right’ choices.” Also, there will be more non-incumbents, financial players and joint ventures; more targeted lines and substation opportunities; and more inter-regional merchant opportunities. Along with more opportunities, transmission is getting even more complex, the presentation added.