How to use cheap renewable energy

Over the last decade, the cost of producing solar energy has been reduced by almost half. Wind power costs have also dropped by 75 percent, and the cost of producing renewable energy has dropped dramatically. While this bodes well for a sustainable future, the difficulty lies in the details: transferring energy from source to user.

To take advantage of all this cheaper renewable energy, the United States desperately needs better transmission infrastructure, explain Lucas Davis, a professor at the University of California at Berkeley, Catherine Hausman, a professor at the University of Michigan in Ann Arbor, and Nancy Rose, a professor at the Massachusetts Institute of Technology, in their article in the magazine “The Journal of Economic Perspectives.

The authors propose a set of solutions that could speed up the approval of new transmission projects through a strengthened federal authority and make better use of existing facilities by upgrading equipment.

Transmission is “the transmission of electrical energy at high voltage and in large quantities over medium and long distances.” Efficient transmission is crucial in the context of renewable energy due to the uneven geographical distribution of different renewable energy sources.

Even in more populated states, key power generation locations are often far from concentrated populations, which makes power transmission important, Davis’ team explains.

In turn, conventional power generating plants – which generate energy from coal and gas – can be built near population centers and fuel imported directly to these plants.

As the cost of generating renewable energy has fallen, the importance of transmitting renewable energy has become more important. Although transmission capacity in the United States increased by 27 percent between 2005 and 2020, the authors argue that the United States still lacks it because transmission capacity is not distributed evenly enough to adequately meet demand.

Davis and his co-authors show that curtailment rates – the intentional reduction of energy production when the amount supplied exceeds the amount demanded – have increased in recent years. Davis, Hausman, and Rose also explain that wholesale electricity prices in renewable energy generation markets often fall below zero, which means that the quantity supplied in these markets often exceeds the quantity demanded.

With improved transmission options, renewable energy developers could sell additional power to other locations when their local market is fully available, reducing the need to curtail supplies while keeping wholesale prices above zero, Davis’ team argues. They explain that this approach can help correct supply and demand mismatches.

Davis and his co-authors, however, identify a number of challenges to large-scale gear development in the United States.

Rather than being a single entity, the U.S. power grid consists of a decentralized set of local utilities, each with a monopoly in its area. Utilities are supervised by regional organizations responsible for managing the flow of electricity in a given area. There are over 50 such regional balancing authorities in the United States.

While local utilities trade electricity among themselves and in organized wholesale markets, balancing authorities oversee the markets and enforce U.S. Federal Energy Regulatory Commission rules. The country is further divided into three large “interconnectors” between which electricity generally cannot be transmitted.

However, the authors explain that balancing institutions focus on ensuring reliability rather than on expanding transmission capacity.

The authors argue that decentralizing the power grid creates incentives for utilities and electricity sellers to avoid cooperation. Moving energy from a low-price area to a high-price area creates benefits for consumers in the form of increased supply and lower prices. As Davis’ team argues, electricity sellers in the recipient’s area will oppose this move because lower prices translate into lower profits. Regulated utilities that own local monopolies have no strong incentives to insist on this and lower prices for their customers because they have no competition.

Moreover, the development of renewable energy transmission faces regulatory challenges.

Before starting construction on a long-distance transmission project, developers must obtain approval from federal and state authorities. Federal laws such as the Clean Water Act, the Endangered Species Act, and the National Historic Preservation Act may apply. Projects involving federal lands must meet the requirements of the National Environmental Policy Act. These regulations add layers of complexity, Davis, Hausman and Rose say.

Davis and his co-authors note that local opposition to energy projects also creates political challenges. They cite successful local campaigns that rejected transmission lines in Maine and New Hampshire.

These opponents often focus on, among other things, land conservation and the negative visual effects of renewable energy sources. Although the benefits of transmission lines are widespread, land use complaints tend to concentrate in local communities.

With these challenges in mind, Davis and his co-authors turn to possible solutions.

First, they consider the prospect of strengthening federal power. First, some solutions have already been proposed by U.S. Senator Chuck Schumer (D-N.Y.) and U.S. Senator Joe Manchin (D-W.Va.). They suggest simplifying procedures under the Act on State Environmental Protection Policy and improving interagency coordination.

Second, the bipartisan Infrastructure Act of 2021 and the Inflation Reduction Act of 2022 gave the Federal Energy Regulatory Commission the power to approve transmission projects despite state opposition. Davis, Hausman, and Rose note, however, that the exercise of this authority may involve challenges from state regulators.

Davis’ team is also identifying some ways to improve transmission without having to build new lines.

For example, projects could focus on upgrading high-voltage lines in existing transmission projects, which would help avoid the need for permits for new projects.

Additionally, further investment by utilities in battery storage could offset the immediate need for transmission lines.

Finally, increased U.S. government support for research and development of these technologies could reduce costs and improve efficiency.

The dramatic decline in wind and solar power generation costs is a positive sign of a net-zero carbon future, Davis, Hausman and Rose note. However, electricity transmission is also a key element of the electricity supply chain. As Davis and his co-authors argue, legislation and further investment will be necessary if the United States is to take full advantage of its growing supplies of clean energy.