The transmission investment debacle

The numerous blackouts experienced recently in many parts of the world make amply clear the fact that the transmission network is the weakest link of the restructured electricity business. With the unbundling of the electricity industry under restructuring, new players, such as brokers, marketers and independent power producers and new structures such as the Independent Grid Operator (IGO) and have been introduced and have led to new paradigms for the operation and planning of the transmission system. The decentralized decision making in the new structure, the large number of new players, the proliferation in the number of transactions on the networks and the markedly different utilization of the transmission system than in the way it was planned and designed have all contributed to the severe stressing of the transmission grid. This has resulted in frequent congestion situations with customers competing for the scarce and heavily constrained transmission services. Moreover, despite the more intense utilization of the grid by the many established and new players, investments in the transmission network have failed to keep pace with the increasing demand for transmission services. The need for investment to improve and expand the grid and to reliably maintain the existing network has been met poorly under competitive markets, with very few exceptions. The sluggishness of transmission investment is caused by numerous factors, but a principal one is the substantial mismatches between those benefiting from the new facilities and those paying for them are often such as to prevent the investments from being made. There is an acute need to set up effective procedures to ensure the timely recovery of transmission investments. In other words, investors need appropriate market incentives to expand and improve the grid. Moreover, the need to integrate the many renewable energy projects and the various distributed energy resources, including the soon-to-grow population of battery vehicles are exerting huge pressures on the expansion of the existing grid. At the same time, the legislative and regulatory climate has been rapidly evolving to recognize the realities of the multi-faceted changes impacting the industry.