Chapter 8 The “Unique” Challenges Faced by Project
B. Signifi cance of Challenges Faced by Project Sponsors in
There is presently a great deal of uncertainty in the carbon markets, which only exac- erbates the challenges faced by project sponsors in monetizing offsets. Writing at a time when the rules governing the creation, monetization and use of offsets vary from place to place, party to party and sometimes even from sector to sector, and based on a number of other factors, it seems clear that uncertainty will be the hallmark of the carbon markets for some time to come. So long as that is the case, it means the sig- nificance of offsets in project financings in the near future will remain uncertain.
Ironically, uncertainty is perhaps the best single word summary of the challenges faced by project participants in monetizing offsets. How apropos then, that the significance of those challenges also remains uncertain.
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An Overview of Transmission and
Interconnection Issues Affecting Renewable Energy Projects
Mark D. Safty and Giji M. John *
If a group of renewable energy project developers were canvassed as to their develop- ment concerns, they would likely raise three concerns, in no particular order: transmis- sion, transmission, and transmission. Over the past ten years, increasing renewable energy development has reduced the number of available renewable energy project sites with optimal confluence of both excellent resource (e.g., strong winds or high solar irradiation) and close proximity to a bulk transmission line. Increasingly, a developable site (which is surely less than an “excellent” site) has one or the other, but not both.
While optimal location is a problem, it is not the only problem for renewable energy project developers in transmitting electricity from their projects. Even those sites that are relatively close to bulk transmission lines are becoming increasingly difficult to interconnect into the transmission system, as the volume of requests to interconnect projects has greatly exceeded transmission operators’ abilities to handle and manage those requests. Additionally, as available renewable energy resources are located far- ther and farther away from existing interconnection points, developers face increasing land acquisition, development, construction, and permitting costs and related time frames to site necessary transmission lines to interconnect their projects into the bulk transmission system. All told, transmission costs translate into increased project costs, if not absolute inviability, of projects.
By contrast, transmission companies have particular concerns related to renewable energy projects. While the ability to handle and manage interconnection requests is cer- tainly a concern of transmission companies, it is not likely their first concern. First for transmission companies are the special problems that renewable energy resources pose to
* Mark D. Safty is the chair of Holland & Hart’s Project Development and Finance Group. He can be reached at msafty@hollandhart.com. Giji M. John is a senior associate with Holland & Hart’s Project Development and Finance Group. He can be reached at gmjohn@hollandhart.com.
OVERVIEW OF ELECTRICITY TRANSMISSION IN THE UNITED STATES
the reliability of the transmission system and the related load management required of transmission companies. Intermittent renewable energy resources (which generally exclude renewable energy resources such as geothermal and hydropower, both of which are functionally dispatchable, base-load resources) produce variable electric power, wholly dependent upon the weather conditions existing at the project site in any given period of time. Intermittent resources cannot, as a general rule, be dispatched upon com- mand or in any predictable fashion; and, their electric power must be taken by transmis- sion companies as it is produced. That production is indiscriminate and results in imbalances when transmission companies’ loads do not match the electric power produc- tion available to meet that load. Additionally, because of the growing distance between project sites and load centers, renewable energy presents technical problems of voltage stability, which must be managed to ensure reliability of the bulk electric system.
To meet these concerns, transmission companies, Regional Transmission Organi- zations (RTOs), and independent system operators (ISOs) have adopted sophisticated systems to schedule the dispatch of renewable energy. In response, project developers, transmission companies, and energy offtakers are entering into increasingly labyrinthine contractual mechanisms to allocate attendant scheduling risks and responsibilities.
This chapter describes electricity transmission within the context of renewable energy project development. Sections I and II provide an overview of the electricity transmis- sion system in the United States, and outline the governing transmission framework.
Section III delves into relevant provisions of the Pro Forma Opn Access Transmission Tariff (OATT), governing the contracting of transmission services. Section IV describes Large Generator Interconnection Procedures (LGIP) for connecting a renewable energy project to a transmission line. Section V addresses the contractual allocation of trans- mission risks between project developers and financiers, transmission companies, and energy offtakers. Finally, Sections VI and VII discuss transmission issues in project financing, and reform to the OATT and the interconnection queuing process.
I. OVERVIEW OF ELECTRICITY TRANSMISSION IN THE UNITED STATES
Transmission is the bulk transfer of electric power from the generation source to the consumer. In 2007, high-voltage transmission lines carried power over more than 160,000 circuit-miles within the United States, 1 from approximately 17,340 generating units totaling 1,087,791 megawatts of nameplate capacity. 2
1 North American Electric Reliability Council, 2008 Long-Term Reliability Assessment, 15, Table 3 (Oct. 2008), available at http://www.nerc.com/fi les/LTRA2008.pdf (last visited June 1, 2009). NERC defi nes “high-voltage” transmissions lines as those with at least 230 kilovolts of capacity. However, it is worth noting that large areas of the country are supplied by lower- voltage transmission lines. Energy Information Administration, Electricity Transmission in a Restructured Industry: Data Needs for Public Policy Analysis, 16 (Dec. 2004), available at http://www.eia.doe.gov/cneaf/electricity/page/transmission/DOE_EIA_0639.htm (last visited June 1, 2009) (“The differences matter because there are large areas of the country where 69-kV and 138-kV lines deliver wholesale, bulk power”).
2 Energy Information Administration, Electric Power Annual 2009, available at http://www.eia.
doe.gov/cneaf/electricity/epa/epat2p2.html (last visited June 1, 2009).
The North American transmission grid requires continuous real-time monitoring and extensive coordination between multiple parties. Colloquially referred to as the
“power grid” or the “grid,” 3 the transmission network is comprised of multiple, inde- pendent transmission systems. 4 As shown in Figure 9.1 , the power grid is composed of three independent power grids: (1) the Western Interconnected System, (2) the Eastern Interconnected System, and (3) the Texas Interconnected System. 5
3 Energy Information Administration, Electricity Transmission Fact Sheet, available at http://
www.eia.doe.gov/cneaf/electricity/page/fact_sheets/transmission.html (last visited May 26, 2009).
4 An “interconnection” is “[a] connected [alternating current] power grid that operates at the same frequency in synchronization.” Energy Information Administration (EIA), Electricity Transmission in a Restructured Industry: Data Needs for Public Policy Analysis, 2 (Dec. 2004), available at http://www.eia.doe.gov/cneaf/electricity/page/transmission/DOE_EIA_0639.htm (last visited June 1, 2009). The Eastern, Western, and Texas Interconnected Systems are not interconnected, except by direct current interties. Alternating current power therefore cannot be transferred between these grids. Energy Information Administration, Electricity Transmission Fact Sheet, available at http://www.eia.doe.gov/cneaf/electricity/page/fact_sheets/transmis- sion.html (last visited May 26, 2009).
5 Id.
Western Interconnection
Texas Interconnection
Eastern Interconnection
Figure 9.1 The Interconnect Systems