Wednesday, August 24, 2011

Western Grid 2050: Contrasting Futures, Contrasting Fortunes – A New Report For the Purpose of Informing Policy and Investment Decisions for the Western Electricity Sector

A new report, "Western Grid 2050: Contrasting Futures, Contrasting Fortunes" (the "Report") was issued today by the Western Grid Group ("WGG") with support from the Western Clean Energy Advocates ("WCEA"). The purpose of the Report is to inform policy and investment decisions for the Western electricity sector. Former Colorado Governor Ritter today joined advocacy groups in calling for western state leadership to work towards achieving the Report's vision.

The Report anticipates that the Western electricity sector will need to invest more than $200 billion by 2030 however, how this money is invested will significantly affect quality of life in the west. According to the report,

[s]ignificant investment will be required because coal, gas and nuclear facilities will need to be retired or replaced, population, economic growth, and electrification will drive gross electricity demand up, demand reduction efforts like energy efficiency programs will continue, new electric generation will be built and new transmission will be added. The question is not whether hundreds of billions will be invested but rather how they will be invested.

 To explore and evaluate the relative economic, environmental, energy security and public health consequences of the different investment choices, the report examined two trajectories: "Business as Usual" ("BAU") and "Clean Energy Vision" ("CEV"). In the study, the BAU trajectory focuses discretionary investment on retrofitting, repowering and adding coal generation and on meeting any incremental needs with new gas fired generation and the CEV trajectory focuses discretionary electricity resource investment on energy saving and renewable energy technologies.

One of the goals of the Report was to encourage an open dialogue on electricity system investment priorities in the West. In comparing the two trajectories, BAU and CEV futures will require different regulatory and policy mechanisms. The BAU paradigm is based on the existing infrastructure.

The utility regulatory structure in place today was chosen more than 50 years ago to induce utilities to invest in large, base load utility-owned generation. The cost based, rate of return regulation paradigm created incentives that are well-suited to the 5 to 10 percent annual growth in electric demand seen in the 1950s and 1960s. A BAU future is intertwined with the perpetuation of the 1950s regulatory paradigm, and thus no significant changes in institutions, regulations or policy are needed in the BAU future.

On the other hand, the report provides that the CEV trajectory will require different infrastructure, different planning and different regulation to support it.

A CEV future depends on aggressive amounts of electricity demand reduction, customer demand response and customer sited distributed generation. The cost of service, rate of return paradigm does not induce investor owned utilities to invest in customer side of the meter resources thus the regulatory paradigm must change in a CEV future. Furthermore, a CEV trajectory requires much greater regional coordination and cooperation to build the infrastructure that access and efficiently utilize the best renewable resources in the West. Conventional regulation does not adequately induce investor owned utility participation in regional projects, and so once again the regulatory paradigm must change. While Publicly Owned Utilities (POUs) do not profit from generation and grid investment in the same way that investor owned utilities do, POUs have also focused on developing resources within their own
boundaries to serve their own need and efficient implementation of a CEV trajectory will require these POU policy choices to change.

The Report is the first in a series of planned reports by the WGG and WCEA. In September, the WGG and WCEA intend to release the second phase of the report, "Clean Energy Vision Policies" describing mechanisms that can be used to guide transition to the CEV trajectory.

The Western Grid 2050 report can be found here:

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