When I said I could make a month of blog posts out of Invenergy's "Tiger Connector" scheme yesterday, maybe I was only half joking. Today, we're going to concentrate on the reality of merchant transmission. Grain Belt Express is a merchant transmission project.
A merchant transmission project is strictly a financial proposition. A company proposes that if it builds a transmission line between two points that load serving entities will find it so useful and economic that they will voluntarily negotiate a contract to use it. Just because Invenergy offers new transmission does not mean anyone will use it.
We need to separate Invenergy's false bravado about "energy" from the reality of merchant transmission in order to think logically about Invenergy's scheme. A transmission line is only a transmission line. It does not produce energy. It's strictly a roadway to get energy from one place to the other. Invenergy is only selling capacity on its transmission line (road), it is not selling energy. It is aptly compared to a toll road -- customer pays to use the roadway to transport something it finds useful and economic. If Invenergy had customers for Grain Belt Express, the only thing the customers would be purchasing is use of the transmission line. Any energy transmitted over the line would have to be purchased from an electricity generator under a separate contract at a separate price. In order to actually take electricity over the line, a customer would have to buy electricity from a point near one of the converter stations and then ship it to their point of use. GBE is a direct current (DC) transmission line. In order for electricity to use the line, it would first have to be converted from alternating current (AC) before being loaded on the line for use at its destination. When the DC electricity gets to its destination, it will once again have to be converted back to AC before being offloaded from the line. The conversion process wastes a considerable amount of energy. If you purchased AC energy from, say, Kansas, you'd lose a considerable portion of it in the two conversion processes before it arrived at your destination in, say, Missouri. If you were the customer, you'd eat the cost of that lost electricity you paid for.
As mentioned, a merchant transmission project is strictly voluntary. A merchant project is not vetted or planned for reliability, economic, or public policy purposes by regional transmission planners. Electric customers don't "need" it for reliability, economic or public policy purposes. It's simply something extra that customers would volunteer to purchase if they found it financially lucrative. And this has been the problem with merchant transmission in the Midwest. It's not attracting customers. Customers in the east are looking at offshore wind and other local renewables, like solar, to meet their renewable energy needs. Eastern utilities have NEVER looked at importing electricity from half a continent away using toll road transmission projects. The cost of the transmission to get it there must be added to the cost of the supposedly "cheap" energy from the Midwest, and the result is often equal to or more expensive than buying local renewables. Another factor for Eastern utilities (and states) is that building renewables locally provides an economic bump to the locality. Eastern states do not want to export all their energy dollars to a generator and transmission company thousands of miles away when they could create jobs and economic development at home. This is why merchant transmission for export has never worked.
First Clean Line Energy Partners, and now Invenergy, have previously claimed in Missouri PSC testimony that Eastern customers in PJM Interconnection will make up the vast majority of the customer base for Grain Belt Express because they can sell the capacity for more money there. Clean Line even offered a below-cost contract to a handful of Missouri municipalities in order to get the project approved as "useful" to Missouri. Clean Line purported that it would make the loss up in its sales to Eastern customers. Except we've never seen any evidence that those customers exist, and with Invenergy's big announcement yesterday that it will only construct the first "phase" of its project from Kansas to Missouri for the time being, I believe that demonstrates that those Eastern customers don't exist. If they did, GBE would be decreasing its offering in Missouri and increasing its offering to PJM.
So, what's left? Invenergy thinks it can maybe find enough suckers, err customers, in Missouri to buy service for importing 2500 MW of electricity for use in Missouri. Except, do those customers even exist? GBE has been offering "up to 500 MW" of service to Missouri customers since the Clean Line days. It has only secured a contract for "up to 250MW" with the municipalities. That extra 250MW has been for sale for years and it appears that nobody has purchased it. But yet Invenergy now thinks its service is so popular it will suddenly be able to sell ten times that amount. Does this even make sense? Where's the customers, Invenergy?
A merchant transmission project is strictly a financial proposition. A company proposes that if it builds a transmission line between two points that load serving entities will find it so useful and economic that they will voluntarily negotiate a contract to use it. Just because Invenergy offers new transmission does not mean anyone will use it.
We need to separate Invenergy's false bravado about "energy" from the reality of merchant transmission in order to think logically about Invenergy's scheme. A transmission line is only a transmission line. It does not produce energy. It's strictly a roadway to get energy from one place to the other. Invenergy is only selling capacity on its transmission line (road), it is not selling energy. It is aptly compared to a toll road -- customer pays to use the roadway to transport something it finds useful and economic. If Invenergy had customers for Grain Belt Express, the only thing the customers would be purchasing is use of the transmission line. Any energy transmitted over the line would have to be purchased from an electricity generator under a separate contract at a separate price. In order to actually take electricity over the line, a customer would have to buy electricity from a point near one of the converter stations and then ship it to their point of use. GBE is a direct current (DC) transmission line. In order for electricity to use the line, it would first have to be converted from alternating current (AC) before being loaded on the line for use at its destination. When the DC electricity gets to its destination, it will once again have to be converted back to AC before being offloaded from the line. The conversion process wastes a considerable amount of energy. If you purchased AC energy from, say, Kansas, you'd lose a considerable portion of it in the two conversion processes before it arrived at your destination in, say, Missouri. If you were the customer, you'd eat the cost of that lost electricity you paid for.
As mentioned, a merchant transmission project is strictly voluntary. A merchant project is not vetted or planned for reliability, economic, or public policy purposes by regional transmission planners. Electric customers don't "need" it for reliability, economic or public policy purposes. It's simply something extra that customers would volunteer to purchase if they found it financially lucrative. And this has been the problem with merchant transmission in the Midwest. It's not attracting customers. Customers in the east are looking at offshore wind and other local renewables, like solar, to meet their renewable energy needs. Eastern utilities have NEVER looked at importing electricity from half a continent away using toll road transmission projects. The cost of the transmission to get it there must be added to the cost of the supposedly "cheap" energy from the Midwest, and the result is often equal to or more expensive than buying local renewables. Another factor for Eastern utilities (and states) is that building renewables locally provides an economic bump to the locality. Eastern states do not want to export all their energy dollars to a generator and transmission company thousands of miles away when they could create jobs and economic development at home. This is why merchant transmission for export has never worked.
First Clean Line Energy Partners, and now Invenergy, have previously claimed in Missouri PSC testimony that Eastern customers in PJM Interconnection will make up the vast majority of the customer base for Grain Belt Express because they can sell the capacity for more money there. Clean Line even offered a below-cost contract to a handful of Missouri municipalities in order to get the project approved as "useful" to Missouri. Clean Line purported that it would make the loss up in its sales to Eastern customers. Except we've never seen any evidence that those customers exist, and with Invenergy's big announcement yesterday that it will only construct the first "phase" of its project from Kansas to Missouri for the time being, I believe that demonstrates that those Eastern customers don't exist. If they did, GBE would be decreasing its offering in Missouri and increasing its offering to PJM.
So, what's left? Invenergy thinks it can maybe find enough suckers, err customers, in Missouri to buy service for importing 2500 MW of electricity for use in Missouri. Except, do those customers even exist? GBE has been offering "up to 500 MW" of service to Missouri customers since the Clean Line days. It has only secured a contract for "up to 250MW" with the municipalities. That extra 250MW has been for sale for years and it appears that nobody has purchased it. But yet Invenergy now thinks its service is so popular it will suddenly be able to sell ten times that amount. Does this even make sense? Where's the customers, Invenergy?
In media quotes yesterday, Invenergy tried to play coy about customers.
Invenergy did not disclose which Missouri entities it expects will buy the additional power, but it is “confident that the customer base is there,” said Sane.
The line is a so-called merchant line, meaning its costs wouldn’t be spread broadly across the region like most intrastate transmission lines. Instead, only utilities and other consumers that buy capacity on the line would pay.
Among those customers are more than three dozen small cities and towns across Missouri, which estimate they will save more than $12 million annually compared with coal plants that supply power under existing contracts.
So the only customers it has are the loss-leader priced ones it has had all along. If there were new customers, Invenergy would have been pushing them to the front of the quote line. Instead, the only advocates singing GBE's praises in yesterday's news coverage were business groups who don't buy electricity. Those aren't customers. Customers are load serving entities who buy electricity wholesale and sell to others at retail.
There is no indication that any new customers are eager to purchase capacity on GBE. Maybe Invenergy is trying to paint Tom Sawyer's fence to attract customers, however Missourians are wise to that game. Duh.
In another self-flagellating talking point yesterday, Invenergy claimed GBE would sell the equivalent of the output of 4 nuclear power plants to Missouri electric utilities. That electricity will be produced in Kansas, not Missouri. If Missouri is going to increase its electricity imports by an amount equal to 4 nuclear power plants, then it must decrease the amount of electricity currently produced in Missouri by the same amount. This is the death knell for 4 (or more) Missouri electric generation plants that currently employ thousands. Importing electricity over GBE isn't going to provide an amount of good-paying jobs equal to those lost. In addition, localities will lose the tax revenues they currently enjoy from those plants that will be shut down without an equal replacement from GBE. GBE is an economic loss to Missouri, no matter how much fluff and nonsense Invenergy tries to disseminate. This is the same reasoning the Eastern utilities use when rejecting GBE. It just makes sense.
And Invenergy has another problem with its new scheme. Investor owned utilities, like Ameren, are for-profit enterprises. Ameren is permitted by regulators to make a profit on the transmission it builds and the power it generates. If Ameren builds local renewables in Missouri, it earns a profit on them. If Ameren builds transmission in Missouri to transmit the renewable energy it generates, Ameren makes a profit. If, instead, Ameren buys capacity from GBE it is only reimbursed at cost of its purchase. There is no profit for Ameren. Likewise on the renewable generators -- if Ameren buys energy from Kansas there is no profit, they are only reimbursed dollar for dollar. So, why would Ameren sign a contract to use GBE to import energy when it could make more money owning local renewables and transmission. I might also add that local renewables don't need huge new transmission projects like GBE so they are ultimately cheaper than imports. In conclusion, why would Ameren buy the milk when it could own the cow? This is just another reason why I believe GBE's scheme won't work.
So much more malarkey to unravel. Next, let's look at Invenergy's media plan for this scheme. I challenge you readers to find any news story that mentions the new "Tiger Connector."
Until tomorrow...
There is no indication that any new customers are eager to purchase capacity on GBE. Maybe Invenergy is trying to paint Tom Sawyer's fence to attract customers, however Missourians are wise to that game. Duh.
In another self-flagellating talking point yesterday, Invenergy claimed GBE would sell the equivalent of the output of 4 nuclear power plants to Missouri electric utilities. That electricity will be produced in Kansas, not Missouri. If Missouri is going to increase its electricity imports by an amount equal to 4 nuclear power plants, then it must decrease the amount of electricity currently produced in Missouri by the same amount. This is the death knell for 4 (or more) Missouri electric generation plants that currently employ thousands. Importing electricity over GBE isn't going to provide an amount of good-paying jobs equal to those lost. In addition, localities will lose the tax revenues they currently enjoy from those plants that will be shut down without an equal replacement from GBE. GBE is an economic loss to Missouri, no matter how much fluff and nonsense Invenergy tries to disseminate. This is the same reasoning the Eastern utilities use when rejecting GBE. It just makes sense.
And Invenergy has another problem with its new scheme. Investor owned utilities, like Ameren, are for-profit enterprises. Ameren is permitted by regulators to make a profit on the transmission it builds and the power it generates. If Ameren builds local renewables in Missouri, it earns a profit on them. If Ameren builds transmission in Missouri to transmit the renewable energy it generates, Ameren makes a profit. If, instead, Ameren buys capacity from GBE it is only reimbursed at cost of its purchase. There is no profit for Ameren. Likewise on the renewable generators -- if Ameren buys energy from Kansas there is no profit, they are only reimbursed dollar for dollar. So, why would Ameren sign a contract to use GBE to import energy when it could make more money owning local renewables and transmission. I might also add that local renewables don't need huge new transmission projects like GBE so they are ultimately cheaper than imports. In conclusion, why would Ameren buy the milk when it could own the cow? This is just another reason why I believe GBE's scheme won't work.
So much more malarkey to unravel. Next, let's look at Invenergy's media plan for this scheme. I challenge you readers to find any news story that mentions the new "Tiger Connector."
Until tomorrow...
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