Western U.S. could reap $2 billion in benefits from a regional electricity market

Western U.S. could reap $2 billion in benefits from a regional electricity market

Energize Weekly, October 27, 2021

The American West – one of only two regions in the country without a regional electricity market – could see benefits of as much as $2 billion a year by creating a western market, while linking eastern and western grids would add even more economies.

Those are the conclusions of two studies – one by western states and another by the National Renewable Energy Laboratory (NREL) – looking at regional grids and transmission.

The West and the Southeast are the only two sections of the country without a regional transmission organization (RTO) or independent system operation (ISO) responsible for coordinating electricity sales and transmission investments.

Texas also operates an independent grid, largely unconnected to other states through the Electricity Reliability Council of Texas (ERCOT).

Advocates of a western regional grid contend that it would enhance reliability, be more economical, encourage more efficient transmission planning and promote the development of renewable generation.

“Creating a western regional market to share energy and transmission resources will greatly increase electric system reliability and resilience,” Amanda Ormond, director of the Western Grid Group, which promotes transmission for renewable energy projects, said in a statement.

“Reliability is becoming increasingly threatened by changing weather patterns due to climate change, and regionalization of the electric grid is an important antidote,” Ormond said.

There have been some small moves toward a regional market in the West.

Since 2014, a Western Energy Imbalance Market, which allows the sale and purchase of electricity close to the time when it is consumed, has been operating across 10 states and by 2023 it is slated to have 22 participating utilities and grid operators.

The California Independent System Operator (CAISO), which launched the energy imbalance market, is building on its success and promoting the development of an extended day-ahead market.

Colorado and Nevada both adopted laws in 2021 directing the utilities in their states to join an RTO, under the jurisdiction of the Federal Energy Regulatory Commission, by 2030.

And in October, a group of 12 electricity producers – serving about 11 million people across eight states – joined together in the Western Markets Exploratory Group, to assess regional market options.

“PacifiCorp has long believed that further connecting the West with new transmission, clean energy resources and market efficiencies will unlock greater savings, reliability and improved environmental outcome,” Stefan Bird, CEO of Pacific Power, a unit of PacifiCorp., one of the members of the exploratory group, said in a statement.

The state and NREL studies underscore how valuable a regional market could be.

Eleven western states – led by Utah, Colorado, Idaho and Montana – collaborated on a market study funded by the U.S.  Department of Energy that projects $2 billion a year of savings and benefits by 2030 if an RTO is implemented.

Expanding the day-ahead market alone, with current grid operations, results in $47 million a year in operation savings and $596 million in reduced need to generation capacity, while the cost of implementing the market is estimated to range from $26 million to $226 million.

Under this scenario system curtailments, such as taking wind turbines offline when demand falls, also decline by 6 percent.

If a west-wide RTO replaces the current grid footprint the savings grow. “Results indicate that the gross benefits of a single-footprint RTO are forecasted to increase from $1.3 billion per year in 2020 to $2 billion per year by 2030,” according to a study presentation. Capacity savings due to load diversity benefits make up 65 percent of RTO market benefits by 2030.”

The west-wide RTO scenario also nearly cuts in half the rate of curtailments to 1.6 percent and trims carbon dioxide emissions by 2 percent to 3.2 million tons annually.

The study also looked at a two-market scenario, with one market encompassing California and another the rest of the West. Even under this operating plan there were savings and benefits, those for the day-ahead market, though $247 million less, than for the single market.

“Results suggest that significant operational savings and capacity benefits occur even under scenarios in which two Western markets operate in parallel,” the study said.

The conclusion was that “bigger is still better” and that a more comprehensive and larger markets are “best suited to maximize benefits for the most Western states.”

“To fully harness the benefits, you have to have a comprehensive RTO,” said Vijay Satyal, regional energy markets manager for Western Resource Advocates, an environmental group. “But it has to be a western solution, an organic solution. You can’t just cut and paste what other RTOs have done.”

The NREL study takes the analysis a step further finding that there are potential economic benefits of increasing electricity transfers over high-voltage transmission lines between the Eastern and Western Interconnections.

“At the western edge of the American prairie, just east of the Rocky Mountains, lies a collection of electrical transmission resources that tie together the otherwise segregated U.S. and Canadian Eastern and Western Interconnections,” the NREL report said.

Those seven high-voltage, direct-current facilities enable current to flow west and east, but that bridge allows just 1,320 megawatts (MW) of electricity to move – a tiny fraction of the 700,000 MW of generating capacity in the in the Eastern Interconnect and 250,000 MW in the Western Interconnection.

“These facilities are aging, and thus their continued use will require additional investment for keeping them in service,” NREL said. “These observations suggest that increasing cross-seam transmission capacity may represent a timely and impactful opportunity for utilities, developers, regulators, and policy makers to modernize and strengthen the U.S. electric grid.”

The NREL study analyzed costs versus benefits and concluded that every dollar spent on upgrading and expanding transmission could produce $2.50 in benefits. One recipient of those benefits was renewable energy generation.

“With variable renewable resources like wind and solar contributing an increasing share of our nation’s electricity supply, the ability to transfer those resources across regions could be incredibly valuable—whether that’s in periods of power system stress, like extreme weather, or during a typical day when we want to take advantage of the best available resources,” Josh Novacheck, NREL senior research engineer and technical lead for the study, said in a statement.

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