The wind blows so hard around coastal La Ventosa in the Mexican state of Oaxaca that it can topple trailers hauling cargo along the highway. But what is treacherous for truck drivers is a windpower bonanza, with a potential of 6,000 megawatts—equivalent to about one-tenth of all Mexico’s installed electricity generation capacity.
Challenge: effective, efficient transmission
“Mexico’s commitment to increase investment in renewable energy—reinforced by a climate bill approved in April by the country’s House of Representatives to increase the share of renewables to 35% of the energy mix by 2024—places windpower center stage. Wind power companies will have installed enough turbines around La Ventosa to generate 2,745 megawatts by 2014.
The challenge is transmission: La Ventosa is on Mexico’s narrow south-central Tehuantepec strip, hundreds of kilometers from major urban centers.
That’s not unusual. Sources of renewable energy are often in remote locations. Wind gusts are most powerful on hilltops, along seacoasts and offshore—often far from cities and towns. Similarly, solar power is most easily tapped in deserts, not where people want to live. So without investment in new power lines to carry new renewable energy to consumers, that energy can find itself ‘lost in transmission.’
Mexico is solving the problem with what is called Open Season Transmission Planning. This process, managed by Mexico’s federal utility, CFE, starts with a request for proposals issued to wind power generating companies. The CFE then undertakes a study to determine the lowest-cost transmission network capable of serving all the wind power generators that have expressed interest, and puts a transmission price offer before them. Before bids go out for construction of the transmission facilities, the generating companies have to put up their agreed share of the cost, and sign a binding transmission services agreement.
This process, followed for La Ventosa, is an example of proactive transmission planning, cited as the preferred approach in a new World Bank study, Transmission Expansion for Renewable Energy Scale-Up – Emerging Lessons and Recommendations.
The study, produced by a team of experts led by Marcelino Madrigal and financed by the Energy Sector Management Assistance Program (ESMAP), recommends that governments and utilities favor such approaches over reactive ones in which the transmission provider responds ex-post to renewable energy projects that are already underway or even completed.
More generally, the report reviews emerging practices and makes recommendations on planning the scaled-up transmission that is usually needed to accommodate new renewable sources of energy. It also provides guidance on regulating transmission to ensure that renewable energy goals are achieved.
“The ultimate goal is effectiveness and efficiency,” said the report’s lead author Madrigal. “That is, the consumers get reliable power at competitive prices, while producers earn a return that covers their costs and provides enough incentive to stay in business.”
Among the emerging approaches by transmission utilities and regulators, the report identifies proactive planning as an optimal path. Linking planning with clear, stable cost-recovery regulation can help bring in the private sector to complement the considerable investment needs in transmission.
Proactive outlook leads to efficient growth
“In the proactive approach, the provider builds transmission with the intention of guiding the efficient growth of the power system,” the report says. “The outcome should be much more efficient than the reactive approach where the transmission needs are planned based on a large number of uncoordinated and self-interested generators.”
Proactive planning can take various forms. In Brazil, for example, generators compete to sell their energy in an auction, and the resulting transmission needs are developed by a new transmission company following a competitive procurement mechanism.
In addition to proactive planning, the report says utilities must price their transmission services efficiently, using mechanisms that achieve a balance between delivering sustainable returns to power generating companies and electricity rates that consumers can afford.
A major challenge is to find the most efficient way of allocating costs when transmission facilities must be extended to a large number of smaller-scale power-generating sites, which is how renewable energy—such as wind and solar—is usually generated.