1 T r a n s m i tt i n g R e n e w a b l e E n e r g y t o t h e G r i d : T h e C a s e o f T e x a s 2014/4 85125 A KNOWLEDGE NOTE SERIES FOR THE ENERGY PRACTICE THE BOTTOM LINE Transmitting Renewable Energy to the Grid: Texas leads the United States with 9,528 MW of installed The Case of Texas wind power capacity—a level exceeded by only four countries. The state needed Why is this case interesting? What challenge did they face? more infrastructure to transmit Texas needed to prioritize and accelerate Transmission investment was contingent on electricity generated from development of remote wind sites generation commitments yet needed to precede it renewable sources, but the regulator could not approve During much of the twentieth century, Texas was a major producer Texas faced the challenge of meeting tremendous needs for transmission expansion projects of petroleum in the United States. The state is now taking advantage transmission infrastructure triggered by the scale-up of generation in the absence of financially of a major renewable energy resource: wind. It currently leads committed generators. To solve the United States with 9,528 MW of installed wind power capacity the problem, Texas devised a (ERCOT 2011) and, if it were a country, would rank fifth in wind Figure 1. Texas’s five competitive renewable energy zones planning process that quickly generation worldwide. connects energy systems When Texas reformed its energy program in 1999, it vowed to to the transmission system. increase the role of renewables in its energy mix. It now uses a The system is based on the renewable portfolio standard to require energy utilities to increase designation of “competitive their energy generation from eligible renewable sources. To minimize renewable energy zones.” costs to the taxpayer, the state’s renewable energy program created competitive renewable energy zones that rely on the private sector to provide infrastructure and operations for generation and trans- mission, while the state provides planning, facilitation, and regulation (figure 1). The renewable portfolio standard mandated that electricity pro- Marcelino Madrigal viders generate 2,000 MW of additional renewable energy by 2009. (mmadrigal@worldbank This 10-year target was met in just over six years and was followed .org) is a senior energy up in 2005 by Senate Bill 20, which raised the targets and mandated specialist in the World that the state’s total renewable energy generation must reach 5,880 With Bank’s Energy Practice. MW and 10,000 MW by 2015 and 2025 respectively. Furthermore, the Rhonda Lenai Jordan legislation required that 500 MW of the 2025 renewable energy target (rjordan@worldbank.org) be derived from renewable sources other than wind. is an energy specialist in the same practice. Source: ERCOT 2008. Note: The 5 CREZs are the highlighted areas; the nonlabeled shapes are counties. 2 T r a n s m i tt i n g R e n e w a b l e E n e r g y t o t h e G r i d : T h e C a s e o f T e x a s from renewable sources. Transmission infrastructure can take longer independent system operator, regional transmission operators, util- to plan and build than the renewable generation plant. But under ities, the Department of Parks and Wildlife, and other organizations. existing regulations, the regulator would not approve transmission The CREZ designation process unfolds in successive iterations over expansion projects in the absence of financially committed gener- the ensuing six months, incorporating the input of all stakeholders on ators or assurance that the transmission project would meet the the proposed regions. In the course of the process, ERCOT develops “Texas faced the challenge needs of specific generation projects. Therefore, the challenge of several transmission scenarios to connect the regions, and the developing renewable energy in Texas was to devise a cohesive plan financial commitment of the generators is assessed. Various parties of meeting tremendous to synchronize the efforts of generators and transmission companies may intervene during the proceedings. needs for transmission and thereby connect energy systems to the transmission system as After considering the sufficiency of the renewable resources, infrastructure triggered by quickly as possible. A key part of the plan was to identify the best the availability of nonrenewable resources for backup services, the scale-up of generation locations for appropriate energy technologies in a large and rugged the anticipated reliability of the system, environmental impacts, state. economic feasibility, and geographic diversity, the utility commission from renewable sources.” formally bestows the CREZ designation. In so doing, it specifies the What solution was adopted? geographic extent of the CREZ and the major transmission improve- ments needed to deliver the renewable energy in a cost-effective The state regulator coordinated and synchronized manner. It also issues an estimate of the maximum generating private investment in generation and transmission capacity of the region that the transmission infrastructure will have Texas adopted a proactive transmission planning process based on to accommodate. competitive renewable energy zones to provide the transmission Develop a transmission capacity expansion plan. Once the CREZs infrastructure needed to carry the fast-growing loads generated from have been designated, interconnection agreements, leasing renewable sources. agreements, and other documents are reviewed to determine the Managed and regulated by the Public Utility Commission of financial commitments of the generators. At the same time, financial Texas, the process (illustrated in figure 2) identifies geographic zones commitments from investors to build transmission facilities are that have the best potential to supply wind power and, thus, to meet reviewed. The utility commission then develops an expansion plan the state’s renewable portfolio standard. The commission works to accommodate the designated CREZs in a manner that is most with developers of renewable energy to see that wind farms are beneficial and cost-effective to consumers. The plan is based on built and with transmission companies to provide the connecting a comprehensive study that assesses alternative scenarios, wind infrastructure. It works with both groups to coordinate their efforts capacity calculations, total and incremental costs, transmission so that, by the time wind farms are ready to produce electricity, the system capacity, congestion, economies of scale, environmental transmission infrastructure is available to distribute it. benefits, and fuel-cost savings. The steps in the process are as follows: Select transmission system operators (TSOs). Once the plan to Designate competitive renewable energy zones. The utility expand transmission capacity is complete, the utility commission commission holds a hearing at which interested parties may selects TSOs based on a comprehensive performance evaluation nominate a region for designation as a CREZ (competitive renewable that considers their proven ability to build, operate, and maintain the energy zone). Simultaneously, the Electric Reliability Council of facilities identified in the CREZs. Texas (ERCOT), which operates the electric grid and manages the deregulated market for 75 percent of the state, initiates a study to Issue certificates. Each selected TSO is required to apply for a identify the top 25 wind regions in the state. Commissioned by the “certificate of convenience and necessity,” which guarantees that utility commission, the study is prepared in consultation with the all costs associated with building and maintaining the network will 3 T r a n s m i tt i n g R e n e w a b l e E n e r g y t o t h e G r i d : T h e C a s e o f T e x a s Figure 2. Texas’s system of competitive renewable energy zones Public Utilties Interested parties Commission (PUC) nominate CREZ proposes CREZ “The process identifies Electric Reliability Input from independent Council of Texas geographic zones that have system operators, regional transmission (ERCOT) performs operators, utilities, statewide wind study the best potential to supply government agencies, and private consultants wind power and, thus, to PUC meet the state’s renewable confirms designation Changes portfolio standard.” of CREZ ERCOT conducts transmission study with multiple scenarios PUC PUC PUC selects awards Winning TSOs selects best transmission system “certificate of build and own transmission operators (TSOs) based Winners convenience and transmission expansion on comprehensive necessity” (CCN) network option performance evaluation to winners Source: Authors. be passed through to consumers via tariffs (based on the “postage transmission investment in Texas would rise significantly in 2012 and stamp method” that allocates costs equally among all users of the 2013, mainly because of the increase in investments in new 345 kV infrastructure). The utility commission ensures that generators have rights of way in the region, investments driven chiefly by the scale-up demonstrated a sufficient financial commitment before issuing the of renewable energy generation, especially wind power. Across certificate. The generators must pay a security deposit to protect the Texas, $5.78 billion has been invested in new transmission since TSOs in case they back out. The deposit is refunded once the plant 1999, and $8.2 billion will be spent under the current five-year plan, has been completed and is ready to supply power as planned. The including $5 billion solely to accommodate 18,000 MW of wind power certificate is what allows the TSOs to proceed with construction. capacity. As of June 2009, requests to connect 72,500 MW of new generation were under review. That new generation is comprised of Texas has managed to achieve comprehensive development of wind (61 percent), nuclear (8 percent), natural gas (19 percent), coal renewable energy through private participation and investment, with (7 percent), and other renewables (5 percent), including solar and the state government using its regulatory authority and facilitative biomass. role to guide CREZ projects and to optimize their efficiency and productivity (figure 3). ERCOT’s 2009 annual report projected that 4 T r a n s m i tt i n g R e n e w a b l e E n e r g y t o t h e G r i d : T h e C a s e o f T e x a s Figure 3. Transmission investments in Texas, 2007–15 (left axis), and standard forces regulators to make plans for cost-efficient MAKE FURTHER cumulative installed capacity in MW, 2007–14 (right axis) transmission five years in advance and overall generation CONNECTIONS and transmission costs will be as low as possible. Millions $3,600 The keys to Texas’s success have been (i) realistic Live Wire 2014/1. “Transmitting $3,400 345 kV goals, (ii) a planning process that incorporates input from Renewable Energy to the Grid,” 12000 $3,200 138 kV all participants in generation and transmission, as well by Marcelino Madrigal with $3,000 69 kV as the public, and (iii) a transparent system to determine Rhonda Lenai Jordan $2,800 10000 $2,600 costs and a reasonable consumer tariff. The proactive Live Wire 2014/2. “Transmitting $2,400 process ensures optimal network expansion, benefitting Renewable Energy to the $2,200 8000 TSOs, generators, and consumers alike. Madrigal and Stoft $2,000 Grid: The Case of Brazil,” by (2011) provide further information. $1,800 Marcelino Madrigal with Rhonda $1,600 6000 Lenai Jordan $1,400 $1,200 4000 References Live Wire 2014/3. “Transmitting $1,000 $800 ERCOT (Electric Reliability Council of Texas). 2008. Renewable Energy to the $600 2000 Competitive Renewable Energy Zones (CREZ) Transmission Grid: The Case of Mexico,” by $400 Optimization Study. Austin, Texas. Marcelino Madrigal with Rhonda $200 ERCOT 2010a. 2009 Annual Report. Austin, Texas. Lenai Jordan $0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015+ ERCOT 2010b. “ERCOT Testimony to House Environmental Regulation Committee.” Austin, Texas. Note: Transmission investment figures are based on projects scheduled to be completed in the designated year and may not reflect actual investment in that year. Costs may be spread over several years. Capacity figures from ERCOT 2011. “ERCOT Quick Factsheet.” Retrieved May 2011 to 2014 include cumulative planned capacity with a signed interconnection agreement. 15, 2011 from Electric Reliability Council of Texas. Austin, Source: ERCOT 2010a and 2010b. Texas. March. http://www.ercot.com/content/news/ presentations/2011/ ERCOT%20Quick%20Facts%20 -%20March%202011.pdf What have we learned? Madrigal, Marcelino, and Steven Stoft. 2011. “Transmission Expansion for Renewable Energy Scale-Up: Emerging Lessons and Proactive and transparent planning ensured optimal Recommendations.” SEGEN Paper 26, World Bank, Washington, expansion of the transmission network DC. June. The Texan experience shows that state government can play an The note is based on original work by Marcelino Madrigal and Steven Stoft. effective role in catalyzing and managing the scale-up of renewable The authors acknowledge contributions to this note by Digaunto Chatterje energy in concert with private operators. Texas uses a proactive (Midwest ISO) and Imran Ali (World Bank). The peer reviewers were: Silvia approach determined on the basis of a renewables portfolio Martinez Romero (senior renewable energy specialist, ESMAP) and Waleed standard that sets the state’s renewable energy targets. The same Saleh Alsuraih (senior energy specialist, MENA).