A Transmission Financing Model for Wind Power Projects

Implications: There are over 12,000 megawatts (MW) of wind powered installations in the US, with many thousands more MW being built or in active planning.  The US potential can be hundreds of thousands of MW, resulting in tens of billions of dollars of annual revenue, and a significant reduction in pollution.  Barriers to this deployment include lack of transmission capacity, which may be addressed through negotiations like what was achieved in Idaho.

Analysis: The US wind power industry, according to American Wind Energy Association sources, is presently at 12,634 megawatts (MW) of capacity, with thousands more MW being developed or in active planning. The US has potential for hundreds of thousands of MW, but barriers exist to prevent  that level of deployment at present.  One of the barriers is lack of high-voltage transmission.

This scarcity of transmission is critical in three regions:  the southwest area of California and Arizona, the Texas Panhandle and the northern Great Plains extending from Idaho to Minnesota.  The Great Plains alone can theoretically supply enough for the entire US, with capacity factors at 40% or higher, and wind turbines delivering electricity up to 6-7,000 hours per year.

High voltage transmission is costly, at one million or more dollars per mile.  Most wind power developers are not able to budget for more than a two figure mile transmission cost without resulting in their project costs being uneconomic, spread across 100-300 MW projects costing between $1.25-1.75 million per MW.  Even significant upgrades of existing line borne by wind power developers can put a project out of reach.

Attempts are being made to spread transmission costs among multiple parties.  A nonprofit group called Windustry looks to pool multiple developers in the Great Plains region to initially pledge an amount toward transmission that would eventually justify a line development.  Another route being taken is to spread costs among parties in the regulatory process.  In this article, an Idaho transmission upgrade would cost $60 million for a 200 MW project, or $300,000/MW.  The Idaho Public Commission approved a negotiated settlement between the developers and Idaho Power that reduced the level of equipment needed for a full upgrade with a change in dispatching protocol, and charged the developers only a percentage of the overall cost upfront, with the rest borne through the rate structure as a public good.

This negotiation would enable Idaho's wind power portfolio to more than triple from the present 75 MW to 275 MW. It may also be a sign of how cooperation and leveraging can accelerate the installation of tens of thousands more MW of projects in these wind-rich areas.