The Path to Net Zero Runs Through the Electric Grid, Which is a Problem

Originally published for customers September 07, 2022

Even before the passage of the Inflation Reduction Act (IRA), the movement to integrate a growing share of renewables into the nation’s power generation sector was being driven by a diverse group of forces, including changing market conditions, state renewable portfolio standards and the drive to electrify everything. According to the U.S. Energy Information Administration’s Energy Outlook 2022, power generation from renewables, prior to passage of the IRA, was expected to increase from 21 percent of all power sources in 2021 to 44 percent of all power sources in 2050.

While utilities recognize the potential benefits of increased renewables capacity, the opportunity also comes with significant difficulties. Power output from renewable resources, predominantly wind and solar, is intermittent and grid operators have a constant challenge of balancing load with available supply at any given moment. To accommodate the growth in renewables, increased transmission capacity and upgrades are desperately needed to enhance system reliability and allow for more efficient integration of these new forms of generation onto the grid. Further, connecting regions flush with renewable resources with demand centers will require new transmission lines to bridge together independently operated regions of the grid.

While this need for transmission infrastructure is a tremendous investment opportunity, project developers realize that the old days when the permitting for such projects never made headlines and projects could fly under the radar with as little attention as possible are long gone. Thus, they are facing the double-edged sword of needing significant permitting reform, which promises a more predictable and streamlined process to gain necessary approvals to construct their projects, but which has the potential to further delay projects as any new permitting processes are implemented. However, we think that, ultimately, substantial permitting reform will be needed if the Biden Administration’s goal to “achieve 100 percent carbon pollution-free electricity use by 2030” has any hope of succeeding.

The Problem

Princeton University’s Net Zero America Report calls for construction of a grid 5.3 times the size of the current grid between now and 2050. As seen in the map, this grid will mainly be designed to bring wind and solar power from states that in the last election voted primarily for President Trump (red) to those states that voted primarily for President Biden (blue), and will need to cross a number of states that neither get the benefit of the new wind and solar construction nor need the power that requires the construction of this massive grid.

Many parallels can be drawn between the gas and electric transmission industries. Both serve as a critical link between supply and demand centers, delivering a product fundamental to myriad industries and everyday life for millions of Americans. However, the drivers for a potential electric transmission buildout differ widely from those of the gas pipeline industry. In the case of electric transmission, there is no supply glut as was facing the shale industry. Instead, the growth opportunities are centered around projected increases in demand, stemming from policies favoring electrification and decarbonization. The path to net zero relies on eliminating emissions from power generation, which accounts for approximately one-third of U.S. greenhouse gas emissions, and significantly reducing emissions from transportation and industrial sources.

We discuss this challenge in greater depth in a recent whitepaper containing a more detailed analysis of the problem and potential reforms that will support such a buildout. Today we just touch on three key reforms we see as needed to facilitate this massive infrastructure growth opportunity.

A Challenge and an Opportunity

On the horizon, the path to net zero offers the electric transmission industry both a challenge and an opportunity similar to that faced by the natural gas industry as shale gas was developed over the last fifteen years. However, unlike gas transmission pipelines that had an established federal agency with authority over the siting and approval of pipelines, there is no similar structure for the review and approval process for high-voltage transmission lines. No lead federal agency exists for the review of electric transmission lines. Without a distinct federal agency leading the charge, project sponsors are left navigating a minefield of local, state, and regional processes with conflicting goals and overlapping jurisdictions, putting the country’s net zero goals at risk. The same group that published the Princeton Net Zero America report issued its initial assessment of the IRA, but noted that the potential benefits from the incentives provided in that law are subject to some key “constraints that are difficult to model” including the “ability to site and permit projects at requisite pace and scale, expand electricity transmission and CO2 transport and storage to accommodate new generating capacity, and hire and train the expanded energy workforce to build these projects.”

Appoint a Lead Agency

Unlike the gas pipeline industry where FERC is the clear lead agency for interstate projects, no single agency “owns” the process for electric transmission. Given the regional and national implications of operating a fully functioning electric grid, this is a problem. Like the natural gas pipeline system, the electric grid is a massive transportation network intended to connect energy supply with demand around the country. Leaving such an important asset, critical to national security, interstate commerce, and everyday life for millions of Americans, to the conflicting goals of divergent state processes no longer seems appropriate. Designating a lead federal agency with a clear mission to facilitate the review and approval of interstate transmission lines is critical to allow a growing share of renewables to serve population centers and be efficiently connected to a more robust and resilient grid. Our whitepaper details the pros and cons of selecting that agency.

Designate Some Transmission Projects as in the National Interest

In conjunction with the passage of the IRA, Senator Joe Manchin struck a side deal with President Biden, Senate Majority Leader Schumer, and Speaker Pelosi to ensure that a permitting bill would be delivered before the end of this fiscal year. A term sheet has been circulating with seven key components Senator Manchin says will be included in the deal. At the top of the list is a suggestion to “designate and prioritize projects of strategic national importance” by creating a list of at least 25 high-priority projects. Labeling projects as “in the national interest” may not be enough, however. As we discuss more fully in the whitepaper, such a designation should include the power of a designated federal agency to site, review and approve such projects and supersede state and local permitting processes and grant the developer the power to use eminent domain if necessary to obtain the required rights of way.

Set Time Limits for the Courts to Review Required Permits

Another reform included in Senator Manchin’s term sheet is a time limit on court appeals to required permits for projects. While that may be helpful if such limits are short, that may not be enough. The slow pace of appellate review can be a death knell for a project, and so setting time limits on the appellate courts’ review of appeals may also be required.

Transmission Infrastructure for Renewables — Real Permitting Reform is Required discusses other reforms that may be needed to facilitate this massive buildout of electric transmission lines. However, there is still substantial doubt about whether any meaningful permitting reform bill will even be enacted as Senator Manchin has indicated. In any event, we believe that if the Biden Administration is serious about achieving its goals by 2030 and making the investments promised by the IRA fruitful, such reforms are badly needed.