Energy Tribune

This week, the Manhattan Institute (disclosure: I’m a senior fellow at MI) released a pair of reports that look at the obstacles to building and financing a nationwide electricity grid. The benefits of having a national electricity grid have been known for years. With these two papers, Manhattan Institute exposes the key policy obstacles to getting a national electricity grid built and shows how the US can get the needed transmission capacity built by tapping private, not public, money.

A national grid offers the potential for increased reliability, redundancy, an ability to move power quickly in case of harsh weather, and of course, the potential to increase use of renewable energy sources, with wind energy likely being the key beneficiary in the short term.

But the barriers to such an expensive and controversial project are many and varied. Chief among them: regional interests. That regional opposition, along with regulatory and economic barriers, is the focus of the paper written by Drew Thornley, an Austin-based energy policy analyst (another disclosure: Thornley and I are friends). Thornley’s report shows just how parochial and fragmented the issue of electricity transmission has become. For instance, last year, ten East Coast governors sent a letter to Congressional leaders which expressed their opposition to transmission lines from the Midwest that the governors said could jeopardize the development of offshore wind projects in the Northeast. When it comes to expanding and improving the electric grid, the governors declared that “Congress should focus its attention on regional solutions.”

That letter provides a key example of how state/regional interests are stacked against a project like a national grid, which could serve the national interest. Gas and oil pipelines are generally regulated by federal authorities. But regulation of high-capacity electricity lines is done by a mish-mash of state agencies with some federal oversight.

The other paper released by the Manhattan Institute was written by Gilbert Metcalf, a professor of economics at Tufts University. The key point in Metcalf’s paper can be found in this quote: “The bottleneck in investment in grid expansion and improvement is not lack of federal funding but rather a failure to recognize that grid investments offer benefits that transcend state boundaries.” Metcalf discusses how a national grid could be made a reality by offering proper financial incentives to private companies. He points out that between 2009 and 2018, more than $90 billion will be spent on transmission capacity in order to assure reliability as well as the ability to move electricity from renewable energy sources to distant cities.

But the disaggregation of the electricity business, with utilities being split into separate companies responsible for generation and transmission, has made the ownership and siting of transmission lines more difficult. Combine the disaggregation of the electricity sector with the regional/state factions, and the challenge of creating a national grid becomes yet more apparent. The essential message of both Thornley’s paper and Metcalf’s paper is contained in Metcalf’s conclusion:

Clear protocols on transmission planning and cost recovery are essential, as is some resolution of the issue of federal and state regulatory overlap. Federal preemption of siting may be necessary to prevent state-level holdups, but it must be done in a way that respects the federal nature of the U.S. political system.

That’s a succinct summary of the myriad problems facing the creation of a national grid. But make no mistake, resolving those issues is a daunting task. Indeed, in the long run, it may be easier for politicians at the federal level to resolve sticky issues like health care and the deficit than to create an interstate, high-voltage electricity transmission system.

Original file here: http://www.energytribune.com/articles.cfm/5384/Short-Circuit-Surmounting…