The Benefits of the proposed Tres Amigas interconnection

Michael Giberson

Both of the Tres Amigas filings at FERC (see background) provide summaries of the anticipated benefits of the proposed interconnection between the Eastern, Western, and ERCOT interconnections.  Each of the five kinds of benefits listed below seem plausible to me.  While estimating the size of the benefits would require a lot of hard work, given the scale of the project and other generation and transmission projects under consideration for the surrounding area, it seems likely that the benefits will be substantial.

To a degree, of course, the investors in Tres Amigas hope that the project will capture some of the value created in the form of profits.  But to a degree such a project should inherently produce spillover benefits in the form of more efficient energy generation and lower cost provision of reliability services.  (A recent working paper discussing the economic effects of the NorNed interconnection suggests that in the NorNed case the interconnection produced mostly private benefits to the investors. I think there is reason to believe that the Tres Amigas case is different, but the point is worth further examination.)

Here is the version of “The Benefits of Tres Amigas” section appearing in the jurisdictional filing (the version in the transmission rate filing is essentially the same; emphasis added):

Tres Amigas will advance the public interest in several important ways. First, a new power marketing hub will be created in proximity to large amounts of existing and potential renewable generation, providing the developers of renewable (and other) generation expanded markets in which to sell their power. Tres Amigas will permit renewable generation being developed in each of the Eastern Interconnection, ERCOT and WECC to be delivered to markets that are currently only minimally accessible. This will enhance the value of new generation, creating additional incentives for its development. This benefit is particularly important because Tres Amigas will be located adjacent to areas of the country that have been identified as among the most promising from the standpoint of developing renewable wind, solar and geothermal power.

Second, marginal prices for energy in the three interconnections, which typically diverge because the markets are electrically separated, will move closer together, allowing electricity to be produced more efficiently and saving electric consumers large amounts of money. For example, the Petitioner’s studies show that marginal energy prices vary significantly between the Southwest Power Pool (in the Eastern Interconnection), ERCOT and the WECC at this time. Our studies show that energy prices vary by more than $50 per MwH in over 2,000 hours per year between the CAISO and ERCOT, over 1,600 hours per year between ERCOT and the Palo Verde hub, over approximately 1,500 hours per year between SPP and the CAISO, and over approximately 800 hours per year between ERCOT and the SPP. Accordingly, significant opportunities exist to produce power more efficiently.

Third, opportunities will exist to “firm up” intermittent and variable renewable energy by taking advantage of geographical diversity and onsite battery technology at Tres Amigas. Studies have shown that the quality of intermittent and variable renewable energy can be enhanced by aggregating sources from geographic locations that may experience high winds or sunshine at different times. In addition, Tres Amigas will expand the geographic reach of markets generally, offering additional opportunities to take advantage of load and resource diversity.

Fourth, the value of transmission investments made in the regions around Tres Amigas will be enhanced by allowing power to move more freely between the interconnections. Tres Amigas will permit power to move to and from different markets, expanding the potential use of the existing transmission grid and expansions thereto. Tres Amigas should provide system planners new opportunities to improve the efficiency and reliability of the electric system at a lower overall cost.

Fifth, electric system reliability in the area around Tres Amigas will be improved because Tres Amigas will connect the three asynchronous grids at a robust station with back-up power and voltage source converter technology that will provide substantial reactive power to the transmission system in each of the interconnections. This is particularly important because Tres Amigas will be located in a remote area, where a strong source of reactive power is necessary to support both new transmission and new renewable generation. Tres Amigas will allow more renewable generation to be interconnected in this important region and reduce the investment cost associated with transmission development in the area.