Transmission value is high, even with low wholesale electricity prices

A new report shows that although wholesale electricity prices began to fall in 2023, transmission value remained high in certain areas – highlighting the “unique” value of transmission in delivering benefits to multiple regions, given its ability to connect areas of the country that are facing different circumstances.

The report, Transmission Value in 2023, was prepared by the Lawrence Berkeley National Laboratory’s Energy Markets and Policy division and Energy Analysis and Environmental Impacts division.

The analysis differs from modelling approaches that are commonly used to value transmission, Lawrence Berkeley National Laboratory said, as it is based solely on the difference in wholesale-market energy prices between locations.

When referring to “transmission value,” the report’s authors are referring to the value of additional transmission as indicated by locational price arbitrage – the value of existing transmission was not calculated.

Have you read:
RTE International assists Mexico’s FEC with transmission planning
Aluminium-calcium composite used for transmission conductor prototype

Trends in 2023

In 2023, additional electricity transmission would have provided the most value for links that crossed between grid interconnection regions in the United States (the Western Interconnection, the Eastern Interconnection, the Texas Interconnection) or crossed between system operator regions within the same interconnection, the report said.

The average transmission value in 2023 declined from past years, along with an overall decline in wholesale electricity prices. Compared with 2022, 2023 saw steep declines in natural gas prices, naturally followed by declines in wholesale electricity prices and transmission value.

Regions that saw the largest decline in transmission value from 2022 to 2023 include the northeast and mid-Atlantic, including the PJM, NYISO, and ISO-NE areas. In 2022, most links with at least one side within these three regions had values between $20/MWh and $46/MWh. However, in 2023, most of these links had values close to $10/MWh, with $16/MWh being the highest value.

Most of the decline in value can be attributed to the decline in natural gas prices, the report said, which has the side effect of narrowing price differentials across regions with varying resource mixes. Additionally, transmission value was elevated in these regions in 2022 due to winter storm Elliott, the report added, and similar conditions impacting wholesale markets were not observed in 2023.

But not all regions saw large declines in transmission values last year. Despite the overall decline, transmission value was higher than the long run average for links that cross between interconnection regions. Many multi-interconnection or multi-region links had values of greater than $20/MWh, or up to $175 million/yr per 1 GW expanded transmission (subject to limits to the depth of the market at each side of the link).

The most valuable link in 2023, at $61/MWh, was between Texas and the Southwest. Multiple events in 2023 (high natural gas prices in the western US, and high summer temperatures in Texas and the Southwest) were observed to have driven this high value.

Of particular note, high prices in Texas occurred at a largely distinct set of hours from high prices in the Southwest, helping to drive up the value of transmission in total.

The report’s authors say this example demonstrates the “unique” value of transmission (compared to other solutions, such as building local generation resources) in delivering benefits to multiple regions given its ability to connect areas of the country that inevitably face differing circumstances.

The authors also noted that transmission can provide many benefits that aren’t reflected in the analysis. The report’s approach captures the value of reducing locally or regionally high energy costs, but only partially reflects the value of reliability and resiliency, the authors said.

In prior research focused on the period between 2012 and 2022, the report’s authors said they found potential savings of new transmission varied across years, was correlated with average wholesale-market energy prices and was highest in 2021 and 2022.

Extreme conditions and high-value periods have an outsized role in driving transmission value, the report said, although named extreme weather events often are not as impactful as “more-normal” but infrequent conditions like infrastructure outages or demand forecast misses.

Originally published by Sean Wolfe on Power Grid International.