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Can the Grid Keep Up With AI and Data Demands?

A new order from the Federal Energy Regulatory Commission seeks to prod longer-term planning to address growing power demands and the transition to renewables.

Drone system engineer and developer Mikkel Tiller, center,and pilot Warren Grange, both with Heimdall Power, discuss their flight to install an orb on a power line Tuesday, April 30, 2024 in Maple Grove, Minn.
A Heimdall Power crew in Minnesota prepares to use a drone to install equipment that will improve transmission line capacity.
Aaron Lavinsky/TNS
In Brief:
  • A new federal energy order requires longer-term planning for energy transmission projects.

  • The order says planners should consider likely energy demand, future renewable power sources and retiring existing plants over a 20-year horizon.

  • Critics, including one FERC commissioner, have said the order could “socialize” the cost of some states’ climate policies.

  • America’s energy demands are growing. New data centers are stressing the electricity grid in many parts of the country. Artificial intelligence “already uses as much energy as a small country,” according to an International Energy Agency report, and its demands are expected to double in the next few years.

    The federal government and many states are also pushing for a broader adoption of electric vehicles, which have lower carbon emissions than gas-powered cars but require more power from the electricity grid. At the same time, many states are trying to wean themselves off of traditional sources of power: Fossil-fueled power plants are gradually shutting down, while new wind and solar plants are being built.

    The simultaneous growth in energy demands and the transition to renewable power sources have raised questions about the reliability of the power grid in many parts of the country. Wind and solar sources generate power differently than a traditional coal plant. But grid reliability isn’t just about generating enough power. It’s also about transmission — the process of carrying electricity from the generating source to the local utilities that distribute it to homes and businesses. That requires expensive infrastructure, namely high-voltage transmission lines that take a long time to plan and build. Anticipating future energy needs is key to making cost-effective investments.

    Recently, the Federal Energy Regulatory Commission (FERC) adopted a new order mandating longer-term planning for transmission, in hopes of building more reliability and resilience into the nation’s energy grids. The order applies to transmission planners, including regional transmission organizations (RTOs) and independent system operators (ISOs), which identify and plan for energy transmission needs. The new order says that those groups need to look 20 years ahead, as opposed to the current five years, when they’re planning new transmission projects. And it lays out a scheme for how the costs of transmission should be allocated among states.

    There’s a lot of minutiae in the 1,300-page order. But its main aim is to improve the reliability of the power grid by pushing states to do more proactive planning. “[The FERC order] is intended to improve the planning and coordination of transmission development in the United States," says Greg White, executive director of the National Association of Regulatory Utility Commissioners. “Siting any kind of energy infrastructure these days is a challenge. People love the service, but they don’t want to have to see it out their back door."

    Looking Ahead

    Transmission projects take a long time to plan and build — over a decade is the norm, according to regulators and researchers. In the case of renewables, the challenge is often to get power from the generating source in lightly populated regions to densely built places that are far away. “If you’re crossing multiple states, or if you’re crossing various national parks, national forests or things like that, it makes the permitting process challenging,” White says.

    Stakeholders involved in transmission planning include local utilities, state regulators, transmission developers and power generators, all with different interests. Transmission developers have a financial interest in building more projects, for example. Power generators may in some cases have a disincentive to add more transmission capacity, because it could introduce competition into an energy market. Those interests are negotiated by RTOs and ISOs.

    Anticipating future transmission needs could cause RTOs or ISOs to make different decisions in the short term, which could end up saving money and providing more reliability in the long term, says Johannes Pfeifenberger, an economist who studies energy markets at the Brattle Group. He gives an example: A group looking five years ahead might determine that they need to build one new high-voltage line based on short-term anticipated needs. But looking 20 years out, it might determine that two lines are likely to be needed in most planning scenarios.

    In that case, they could still complete just one line in the short term, but build it on infrastructure that could carry a second line later on. That would increase the upfront cost, but would still be much cheaper than building all new infrastructure for a second line. “Transmission planning is very compartmentalized currently, which makes it quite inefficient,” Pfeifenberger says. “Ideally, the required long-term planning process would look out to identify all transmission needs over the next 20 years to then make better near-term investment decisions.”

    Allocating Costs

    Determining long-term transmission needs requires consideration not just of likely future energy demand, but also the development of new generating facilities and the retirement of old ones. Public policy set by the states plays a role there. States with aggressive decarbonization goals are more likely to have new solar and wind facilities that need to be hooked into the power grid, for example.

    One criticism of the new FERC order is that it would require some states to pay for others’ climate policies. Mark Christie, one of three FERC commissioners and the only one to vote against the order, said that it would “socialize the cost” of some states’ climate agendas.

    The order is “a gift to developers of solar and wind projects at the expense of consumers and taxpayers,” one former energy regulator wrote for the libertarian-leaning Cato Institute.

    But others say FERC was careful to allocate the costs of long-term transmission planning fairly among states. Under the order, while there are still complexities in determining how much benefit a state gets and should pay for, states only pay for transmission projects that will benefit them.

    “The harder thing is when you benefit, but maybe you wouldn’t have signed up for that [project] to begin with, but that’s just tricky,” says Dan Scripps, chair of the Michigan Public Service Commission, the state’s energy regulator. The alternative, he says, is letting states choose whether or not they want to pay for each transmission project, even if it would benefit them. That could create a situation where they hold out on paying for needed transmission projects, hoping that they could get the benefits for free, and make it even more difficult to plan for transmission needs.

    Some RTOs see real advantages in long-term transmission planning of the type that FERC requires in its order, says Claire Wayner, a senior associate at RMI, a clean-energy think tank. Non-RTO regions are likely to comply with the letter of the order, but not strive to meet its full potential.

    In any event, FERC worked overtime to make the order agnostic about state policies, she says. If one state decides to build lots more fossil fuel plants, and another state would benefit from the transmission infrastructure required to enable that generation construction, the cost-sharing responsibility would flow that way as well.

    “States can go and pass whatever policies they want,” Wayner says. “It is up to the planner to then make sure that the grid is reliable and that that reliability is maintained in an affordable way. That’s what this order is about. And all these near-term reliability challenges you’re pointing to are directly a result of a lack of long-term planning.”

    Michigan is part of the Midcontinent Independent System Operator (MISO), one of the biggest regional transmission organizations in the country, covering 15 states. It includes states with diverse political cultures and energy markets, from Minnesota and Illinois to Louisiana and Texas. During its last big transmission-planning push, MISO used many of the planning principles called for in the new FERC order, including gaming out different future energy scenarios and trying to find solutions that would work for most of them.

    In that sense, FERC “saw what was happening in MISO and said, essentially, this is what we’d like to see happening across the country,” Scripps says.

    But it will take time to see how states and RTOs react to the order. “It’s different when it’s a requirement versus when we’re trying to get somewhere together,” Scripps says. “Whether [the long-term planning mandate] accelerates or short-circuits the process, we’re waiting to see.”
    Jared Brey is a senior staff writer for Governing. He can be found on Twitter at @jaredbrey.
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