FERC POLICY AIMS FOR CERTAINTY ON TRANSMISSION GRID ACCESS

Over the next few years North American wholesale power markets will need new generation capacity. The economics for new entrants, however, depend on the degree of certainty over access to the transmission grid and its cost over the life of the power plant. The inability to address this issue of long-term grid access is likely to distort the technology mix of the new power plants that will need to be built. Policymakers have given the Federal Energy Regulatory Commission (FERC) the authority, under the Energy Policy Act 2005, to ensure that regional transmission organizations (RTOs) introduce long-term transmission rights. This CERA report reviews lessons learned from power markets around the world concerning grid access and puts into context the recent federal initiatives.

- Wholesale power markets in Great Britain; Alberta, Canada; and the Electric Reliability Council of Texas have policies that support long-term grid access. These markets link transmission grid expansions in anticipation of wholesale market changes as the primary source of providing certainty of grid access in varying degrees and different levels of risk for generators.
- However, most deregulated US wholesale markets administered by an RTO address the problem of short-term access only through the allocation of financial transmission rights. The lack of mechanisms supporting medium- and long-term access in these markets creates uncertainty for generators.
- To address this lacuna, the FERC has called for the introduction of long-term transmission rights in RTO wholesale power markets, with the initial ruling providing broad guidelines. A final go-ahead will have a far reaching impact on critical issues such as the technology mix of generators, the required level of transmission investment, reliance on spot markets for power transactions, and many other facets of the power market.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.