Explainer: What Makes Transmission So Difficult (and Vital)?

For all the calls to increase solar and wind generation, do people know the importance of transmission in our ability to actually use it? The climate-driven need to make power from carbon-free sources sees a full response only when we can convey intermittent sunshine and wind - along with hydropower, nuclear, and other fossil-free energy sources-  across the country. But to convert this energy into a usable form, an up-to-date transmission system – a major component of “the grid” – is critical to ensuring clean electricity can actually reach consumers. Despite optimistic growth in renewable energy capacity, there has been considerable stagnation in the development of transmission.  Policy and financial challenges have plagued proposed transmission lines, but recent federal reforms promise to alleviate some of these difficulties.

Most individuals only interact with the electricity system through a monthly bill sent by their utility. But utilities are far from the omnipotent force they pose as to consumers. The electricity landscape is instead a hodge-podge of public and private organizations, making money from sections of the infrastructure. Consumers, known to utilities as “ratepayers,” often pay for improvements and expansions made to the energy network.

But what do these expansions entail? The production, transport, and consumption of electricity involve a complex web of power plants, wires, towers, substations, and load devices. Thus, the amount consumers end up paying – in dollars and in carbon emissions – depends on economic decisions by not-always-coordinated companies.

Developments like solar and wind farms are often distant from concentrated load centers (i.e., dense populations), and transmission is needed to deliver this energy to the greatest demand. Not all players in the network can or even particularly want to replace fossil energy with clean energy. In a number of instances, the capacity for renewable electricity eclipses our ability to consume it.  If we think of electrons as cars, they are starting to exhaust available road space; in electricity parlance, this congestion takes place on ‘the grid.’ Increasingly, limitations to renewable energy consumption are based on barriers to the expansion and modernization of our grid.

Continuing this analogy, highways and city streets are the transmission and distribution lines of the electrical grid. Politicians and energy experts alike have pinpointed transmission lines as one of the most cost-effective improvements to tap into the advantages of renewable energy.  However, significant policy and economic barriers impede transmission projects, or complicate strategies to ensure they actually get built once in the planning stage.

Development of transmission lines depends on the financer or expected owner. In a vertically integrated system, utilities own all components of the supply chain and initiate transmission development. While this is traditionally the most common model, intermediary groups known as “merchant” transmission companies have expanded their reach. These private ventures own and develop transmission lines, selling capacity to generators and utilities.  In a recent analysis of 22 “shovel ready” transmission projects, roughly half are owned by merchant companies.

Private generation developers do not own or build transmission lines, but may be responsible for financing new infrastructure that will connect to their energy grid. Insiders call this the “participant funding” structure. Generators companies are reimbursed by utilities over a period of up to 20 years, but large upfront costs and a long payback time have discouraged renewable energy development and connection to the grid. The participant funding structure was an effective model during the era centralized power plants, minimizing investment risk for utilities and allowing for the efficient construction of upgrades. However, clean energy advocates argue that for renewable energy projects – which are often distributed and smaller in scale – these costs have become prohibitive.

A novel provision in the Infrastructure Investment and Jobs Act (IIJA) has potential to alleviate debts for developers. Through a $2.5 billion “anchor tenant” loan program, the Department of Energy (DOE) is now positioned to become an important financier of transmission lines across the country. The DOE can purchase up to 50% of the planned capacity of proposed projects, subsequently selling their share once the development becomes financially viable. It is yet to be seen how the DOE will allocate these funds, but the program indicates that the federal government is prepared to invest in grid development.

Complicated ownership structures aside, a majority of the United States’ transmission network answers to Regional Transmission Organizations (RTOs). These are quasi-governmental groups charged with managing congestion on the grid, as well as setting the prices for electricity sold to utilities. Reliability and affordability are the RTO mantras. Increasingly, they have also been involved in long-term planning for transmission development. As the development of renewable energy accelerates, RTOs have a federal responsibility to ensure our grid expands with it.  

The permitting process for transmission lines can also be quite fragmented and convoluted. It may take anywhere from six months to several years for a transmission project to acquire the requisite permits for development. Many states require developers receive a “certificate of need,” proving that a transmission project will be beneficial to goals such as relieving congestion or helping to meet clean energy targets. Developers also must show how costs are being passed down to consumers, and prove that the burden can’t be deemed unfair to the ratepayer. Varying state requirements can easily extend the permitting process, and lead applicants and regulators to court.

Where transmission lines are sited is a particularly thorny issue, often drawing the ire of local residents. Developers try to maximize existing rights-of-way before confronting private property, but pushback is common. Recently in Maine, a proposed 145-mile, $1 billion transmission project known as the New England Clean Energy Connect was overwhelmingly defeated in a state referendum. Despite governors’ ambitions to deploy renewable energy, local conservationists and rural land disputes have stalled progress on state targets.  Transmission project sponsors may occasionally employ powers of eminent domain to advance projects to the construction phase. However, NIMBYism remains a serious challenge to expedited transmission development, and a force that can stop projects completely.

Despite these policy challenges, recent federal reform will make progress toward unlocking nearly 700 gigawatts of clean energy waiting to connect to the grid. The IIJA increased the Federal Energy Regulatory Commission’s (FERC) Backstop Siting Authority, which allows the agency to approve transmission project hung up or rejected by state courts. Additionally, the Act gives DOE more authority to expand the nation’s National Interest Electric Transmission Corridor, effectively allowing for greater federal jurisdiction.

The effect these reforms will have is unclear, and some have argued that the changes are a “mixed bag.” However, the inclusion of these provisions at all signals that the federal government acknowledges the status quo is insufficient. Transmission development has ascended to become one of the key issues in electricity decarbonization, with Congress and FERC grappling with the challenge presented. Policy affecting the grid will have sweeping implications for both investors of clean energy and businesses looking to reduce their emissions.