Atlantic Wind Connection No Longer a Wind Connection

Well, it’s happened.  Here’s what I said back in 2010

Business conspiracies like the PJM cartel are hard to maintain.  Economists will tell you that cartels are inherently unstable because eventually it becomes more profitable for one or more of the conspirators to be the first to break out of the cartel’s rules.  You can always gain a competitive advantage if you are the first company to break out while other cartel members sit around thinking how smart they are for cooking up their conspiracy.

For months, those of us who have been following PJM’s Project Mountaineer have been puzzling at the strange behavior we have been seeing from Project Mountaineer conspirators.

First, Dominion Virginia Power proposed an alternative to PATH that would eliminate the need for any new power lines and would use the TrAIL line to do it.

Then, Project Mountaineer co-conspirator PSE&G, the New Jersey utility that wants to build the Susquehanna-Roseland line, published a report last week attacking the idea of building transmission lines to the east coast to transport coal fired power.  I characterized this behavior as “schizophrenic” at the time.

Now, everything becomes clear with the announcement of the offshore backbone transmission project.  From — Virginia to New Jersey.

Bingo.  While AEP/Allegheny were tied up with their goofy “reliability” scam and trying to get their PATH project through state regulators and the federal EIS process, PSE&G and Dominion were, no doubt, quietly working with the offshore backbone investors to create a straight shot to the New York/New Jersey markets.  Project Mountaineer without the headaches, at sea level.

Now we have a story over at SNL:

An undersea transmission project that for years was pitched as an efficient way to move electricity from offshore wind farms in the Atlantic Ocean to load centers along the East Coast now is “essentially divorced” from the fate of the nascent industry, a project official said April 16.

Known as the Atlantic Wind Connection, the project originally was conceived as a high-voltage link between northern New Jersey and southern Virginia, with the first phase, dubbed the New Jersey Energy Link, starting off the Garden State’s coast …

“Right now we’re essentially divorced from offshore wind,” Mitchell said at an April 16 briefing hosted by the U.S. Energy Association in Washington, D.C. “So we and regulators and others have to look at this line in New Jersey … as an important link within the existing grid.”

While Mitchell pointed to the potential ratepayer savings the project could bring — “an illustration of the impact that congestion and free-flowing transmission can have on ratepayers,” he said — the pivot away from offshore wind does not seem insignificant given the project’s history.

When Google Inc., now an investor in the project, was debating whether to participate, the company wanted some assurance that the cable would not be used simply to “move relatively cheap power in Virginia that is largely generated with coal … up the coast and maybe all the way to New York,” Mitchell said.

Mitchell could not say when, or if, the cable would ever make its way down to Virginia, but the project’s owners are now “agnostic as to what power comes on that line. It’s just a line like a highway,” he said.

Google declined to comment. The company’s website describes the project as “a superhighway for clean energy transmission.”

While the focus of the Atlantic Wind Connection has shifted to relieving existing congestion in New Jersey, Mitchell emphasized that the infrastructure would be there should wind farms ever take root off New Jersey’s coast. The cable is not expected to be in place before at least 2017, he said.

So there you have it.  The same old tired argument for importing power to relieve NJ’s claimed “congestion.”  Unfortunately, that argument is long out of date.  Here is PJM’s own analysis from 2012.  And we know that NJ’s problems are not caused by a lack of transmission, but by active suppression of new local generation by PJM and FERC.

As we know, the congestion that power companies and grid operators like PJM talk about is not the actual congestion of electrons on power lines.  It is “economic congestion” created when there is not enough line capacity to feed into an area in times of high demand, and power must be supplied from other more expensive generators.  The difference between the cheapest power on the grid and the more expensive power that must be dispatched to meet peak demand in some areas is called “congestion cost.” But remember what grid expert Hyde Merrill said in the East Virginia TrAIL case:

Rate-payers do not pay “congestion costs.” “The effect of PJM’s real-time pricing mechanism is to raise prices – dramatically – when congestion occurs. This is intended to send a price signal to encourage more generation and demand side savings in congested areas. However, to protect ratepayers from huge price increases due to congestion, PJM created a hedging mechanism. PJM captures a portion of the congestion related price increase, which it calls “Congestion Costs.” PJM then rebates these increased costs to the ratepayers through the FTR [Financial Transmission Rights] mechanism… These are bookkeeping procedures carried out within the market accounting and billing system…. When [PJM witnesses] refer to congestion costs of $1.2 billion in a single year, for example, they are referring to ratepayer rebates, not to costs paid by ratepayers.” (See Merrill testimony.)

Testimony of Merrill and Sovacool from the TrAIL case before the Virginia State Corporation Commission can be found here: http://www.pecva.org/anx/index.cfm/1,341,0,44,html/SCC-Testimony.

So eliminating congestion costs with rate payer subsidized transmission projects, such as the newly “divorced from offshore wind” AWC, is just a complicated and expensive way of shifting the costs of the PJM/FERC campaign to suppress generation in congested NJ from power companies to rate payers.

AWC’s real problem is that US electricity demand is now flat or falling.  There is little room in the market right now for large amounts of any kind of new generation, including offshore wind.  The slack created by coal plant closures has been more than made up for with new gas-fired plants and land based wind farms.

Now the real purpose of the AWC, as we had suspected back in 2010, has now been revealed.  And it’s not about offshore wind power development.  It’s about keeping the coal/nuke base load plants going for a few more decades while rate payers foot the bill for unneeded high voltage transmission projects.  By the way, AWC already has a nifty 12.59% FERC approved guaranteed rate of return.

 

3 thoughts on “Atlantic Wind Connection No Longer a Wind Connection

  1. This sounds like a terrible turn away from sensible energy policy which includes renewables and discourages huge coal fired transmission lines to a non position which will only exacerbate the carbon emissions problem this country has had for decades. When are the powers that be going to be more receptive to future clean energy projects? Its the future and is key to survival of the human race.

  2. Why are you picking on AWC? They have apparently conformed in order to get their project built… or have they? As well, the incentives are only available if AWC’s project becomes a part of the RTEP, and O1000’s new cost allocation process changes up cost responsibility significantly. In your rush to villainize AWC, you’ve left a lot of important pieces out of this story.

    • Not rushing to villainize AWC. As you point out, there are a lot of factors still in play here. But as we have always said about transmission, even transmission ostensibly for offshore wind, there is no guarantee about where the electrons come from. The switcheroo for AWC was there from the beginning. This is just a new phase of the process. The high level of uncertainty in the generation markets is reflected in the uncertainty about all infrastructure projects. Dominion has shown that it wants total control of East VA’s offshore development and they will control its transmission connections, largely because of East VA’s incumbent-friendly policies. There is also a lot of evidence, including some PJM studies, indicating that a “backbone” approach is more expensive and not as efficient as building transmission directly from wind farm areas to onshore substations.

      While AWC is not currently part of an RTEP, this whole “divorce” project has the smell of the beginnings of a so-called reliability story to be used in PJM’s TEAC. The fact is that the FERC incentive is there, and AWC is not going to see it go to waste if they can help it. Flat demand is making a mess of everyone’s plans, AWC is no exception.

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