Transmission Upgrades Give SPP a $240M ‘Bang for the Buck’

A study released on January 26 has found that members of the Southwest Power Pool (SPP) realized over $240 million in annual fuel cost savings during the first year of operation of their wholesale energy market from the transmission investments they made between 2012 through 2014. Overall benefits expected to exceed $16.6 billion over 40 years.

The “Value of Transmission” study from the regional power grid operator analyzed the cost benefits provided by 348 transmission upgrades that involved nearly $3.4 billion of capital investment.

Previous studies by SPP projected the expected future value of transmission construction, based on latest available forecast data. By contrast, this study used actual historical operating data obtained during the first year of operation of SPP’s Integrated Marketplace, starting in March 2014, to document transmission value already realized.

In addition to fuel cost savings, the study quantified other benefits associated with the transmission expansion upgrades – including improvements in reliability and resource adequacy, generation capacity cost savings, reduced transmission losses, and increased wheeling revenues

The net present value of all quantified benefits is expected to exceed $16.6 billion over a 40-year period, resulting in a benefit-cost ratio of at least 3.5. This means, SPP said, that the investments are expected to produce more than $3.50 in overall benefits for every $1 in transmission-related costs.

“Transmission does more than just keep the lights on. It’s an enabling resource that paves the way for numerous benefits to our stakeholders and their customers,” said SPP CEO Nick Brown, adding, “A modernized transmission system increases reliability, reduces costs by providing access to a wholesale energy market and effectively integrates wind and other renewable energy to the grid.”

“The SPP Value of Transmission study is a path-breaking effort,” noted Johannes Pfeifenberger, Judy Chang, and Onur Aydin of the Cambridge, Massachusetts-based consulting firm Brattle Group in a letter accompanying the study. Compared to transmission planning studies, “it provides a more accurate estimate of the total benefits that a more robust and flexible transmission infrastructure provides to power marketers, market participants and, ultimately, retail electric customers.”

Brattle added, “The estimated present value of the production cost savings in the SPP study likely is understated” due to several factors, including the fact that many of the major transmission projects evaluated were not yet in service during most of the period analyzed.

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