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US execs push for new incentives, pay-for-performance transmission model

U.S. electric utility companies and competitive transmission developers need new incentives that reward efficiency improvements and allow project sponsors to share in cost savings, industry leaders said Oct. 21.

"There's actually a penalty on utilities for putting in low-cost solutions that solve big problems, and I think we need to fix that," Gregg Rotenberg, CEO of grid optimization company Smart Wires Inc., said at the inaugural EnVision energy summit in Lexington, Ky. The event was jointly hosted by Federal Energy Regulatory Commission Chairman Neil Chatterjee, a Lexington native, and the University of Kentucky Center for Applied Energy Research.

Rotenberg, whose company is pursuing grid modernization projects expected to yield 1.5 GW in improved power transfer capacity in the United Kingdom, held that nation's incentive framework up as a model for the U.S. to emulate.

"Why is it going slower in the U.S. than in virtually every other country?" Rotenberg said during a wide-ranging panel discussion focused on transforming the way transmission investments are made. "It is the incentives."

U.S. utility companies and other transmission developers are still primarily operating under an incentive structure that allows firms to earn a return on big capital projects, Rotenberg said.

In contrast, Rotenberg noted that the U.K. has identified different congestion points on its grid and calculated a target price for solutions that bring more energy across various regions. If a transmission developer provides a solution exceeding that target price by a dollar, the company's shareholders eat 50 cents of that dollar, Rotenberg said. However, if a developer spends a dollar less than the target price to solve the problem, its shareholders get to keep 50 cents of those cost savings.

"That's undoubtedly why the U.K. is so aggressively pursuing low-cost, very efficient solutions," Rotenberg said. "Because they've been given a massive incentive to go solve these problems."

On the sidelines of the panel, former FERC Chairman Jon Wellinghoff agreed that the commission's current transmission incentive structure is in need of reform. "Right now, it does not expressly reward for efficiency," he said in an interview. However, Wellinghoff noted that FERC launched a review (FERC docket PL19-3) in March of its 13-year-old transmission incentive policies, a reassessment that could produce a similar incentive structure to that in the UK.

Now the CEO of Gridpolicy Inc., Wellinghoff helped several parties submit comments in that proceeding in support of a pay-for-performance model in which utility and nonutility developers are rewarded based on the level of cost savings their projects achieve.

FERC is also hosting a series of technical workshops on technologies, which Wellinghoff said would be "very appropriate to look at for rewarding investments." Those events include a two-day event scheduled for Nov. 5 on grid enhancements, such as power flow control and transmission switching equipment, storage technologies and advanced line rating management technologies.

As part of its review, FERC could implement additional incentives based on a cost-benefit ratio that determines an upgrade's specific efficiency impact, Wellinghoff said. Under that model, a portion of the projected savings could then be awarded to the developer that achieved them, he said.