Economists at The Brattle Group have authored a letter that provides a review of Southwest Power Pool’s (SPP) newly-released “Value of Transmission” study. The study finds that transmission investments in the SPP region from 2012 to 2014 have resulted in more than $240 million in fuel cost savings for utilities during the first year of operation of the company’s wholesale energy market. Additionally, the net present value of all qualified benefits is expected to exceed $16.6 billion over a 40-year period.
In their letter accompanying the report, Brattle Principals Johannes Pfeifenberger and Judy Chang, and Senior Associate Onur Aydin note that, compared to traditional planning studies, the SPP study is “a path-breaking effort that provides a more accurate estimate of the benefits that a more robust and flexible transmission infrastructure provides to power markets, its participants, and retail electric customers.” The authors also find that the estimated present value of production cost savings in the study is likely 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; the selected period did not include a full spectrum of challenging system conditions; and the growth rate of the quantified production cost savings may exceed the assumed annual rate of 10 percent per year, based on experience from other SPP transmission benefit studies.
The Value of Transmission study analyzes the value provided by 348 transmission upgrades that involved almost $3.4 billion of capital investment. In addition to fuel cost savings, the study quantifies other benefits associated with the transmission expansion upgrades, including reliability and resource adequacy benefits, generation capacity cost savings, reduced transmission losses, increased wheeling revenues, and public policy benefits associated with more optimal wind development facilitated by the transmission upgrades.
The Value of Transmission study can be viewed in its entirety on SPP’s website. The Brattle letter can be downloaded using the link below.