R Street Policy Study No. 172: Efficient Solutions for Issues in Electricity Seams
Last month, the Federal Energy
Regulatory Commission issued a notice of inquiry asking for ways to improve
incentives for the construction of electric transmission. It is pertinent to
understand the incentives that exist today for the construction of the nation’s
grid.
In a new policy study, R Street Director of Energy Travis Kavulla discusses how the electricity markets of the United States operate in silos, even though many of them are physically interconnected and trade a commodity that moves at the speed of light. Kavulla argues that electricity markets need to seek out ways to facilitate trade between them, across what experts call their “seams.”
The author argues that there are
“software” solutions that can make our grid more efficient, even before we
spend money on additional “hardware,” like new transmission lines. When we do
need more “hardware,” we should consider innovative business models to pay for
its construction, and the FERC is currently paving the way to do that.
The
author concludes that “ISOs have conferred significant
advantages in terms of the efficiency of the American power sector. Yet by
becoming free-trade zones unto themselves, they in some ways make it difficult
for those outside the ISO to trade into it.”
