Challenges of Developing and Building New Transmission Facilities

March 24, 2023
John Dalton

An important contributor to the challenges of developing and building new transmission facilities is that the broad-based benefits that the facilities offer typically are realized by different parties: (1) the customer or transmission rights holder; (2) the transmission system operator or transmission owner; and (3) society. If the benefits were realized by just the transmission rights holder (e.g., an independent power producer who requires transmission service to deliver its product to load serving entities or a load serving entity that requires transmission to access supply) then it would be easier to ensure an efficient level of transmission development. However, with the benefits more diffuse, there is likely to be an under investment in transmission unless there is a deliberate effort to quantify and assign each benefit and where the benefit isn’t realized by the transmission rights holder, it is recognized in the cost allocation process or when the investment decision is made.

Another aspect that adds to the challenge of developing transmission is that the parties that realize these benefits can change depending on the market structure. In competitive wholesale electricity markets a number of these benefits (e.g., congestion and losses, which are reflected in locational marginal price differentials) are monetized and can be captured by market participants (e.g., through financial transmission rights). Finally, the benefits attributable to a transmission project will vary depending on where the transmission project is located; the types of generating resources that it interconnects; and the characteristics of the electricity system in which it operates. The categorization of benefits presented below is for a typical transmission project and follows a categorization presented by Brattle. The graphic outlines the broad-based benefits of transmission facilities, identifying the category of benefit, specific form of benefit and who typically realizes the benefit.