A project that would transform the U.S. grid’s three isolated segments into a national transmission system could be financed and working on construction by the end of 2014.
Two major concerns regarding the much-hyped Tres Amigas interconnection have been answered. Utilities and other potential investors are gathering, and power producers throughout the Southwest are checking in regularly.
“It’s a really bold idea,” said former FERC Chair James Hoecker. “Butinterconnecting the country’s three major grids seems like the logical step toward a national bulk power network.”
Tres Amigas will be the first interconnection of the Eastern, Western, and Texas grids. Sited on 14,400 acres in Clovis, New Mexico, at the edge of the three systems, it will modernize the carrying capacity of the world’s biggest machine, the 120-year-old U.S. transmission system.
Tres Amigas will also establish a power exchange, much like the markets now operated regionally. And through the exchange, new energy resources will become available nationwide.
Using state-of-the-art power electronics, the interconnection will allow power trading with price differentials that justify Tres Amigas’ $1.8 billion cost, explained Tres Amigas Chief Operating Officer David Stidham.
Creating ‘a massive power exchange’
When Tres Amigas CEO Phil Harris was the CEO of PJM Interconnection, he led the creation of the first regional transmission organization (RTO) power exchange in the Northeast, said Stidham. Under Harris, PJM became the world’s biggest competitive wholesale electricity market. It now serves parts of 14 states, over 830 companies, 60 million customers, and has a 167 gigawatt carrying capacity.
After Harris retired, he consulted for the China National Grid Project, designed to interconnect China’s less-than-robust State Grid and Southern Power Grid systems through “a high voltage direct current system that dwarfs anything in the U.S.” explained Stidham.
With ERCOT’s Competitive Renewable Energy Zones (CREZ), which bulked up Texas panhandle transmission for carrying wind, “all of a sudden the three U.S. grids were close together,” Stidham said. Harris “started putting the two ideas of a high voltage national interconnection with modern power electronics and a massive power exchange together.”
Amarillo and Clovis were the cities nearest the grids’ proximity. Under New Mexico Governor Bill Richardson, the state leased 15,000 acres for the 30 gigawatt project, Stidham said. The control and dispatch center will be inAlbuquerque because of Governor Susanna Martinez and state legislators’ strong pro-business negotiations.
“Tres Amigas will allow power transactions that are not now available,” Stidham said. “A wind project typically requires a power purchase agreement [PPA] to obtain bank financing. But if the developer could sell into any of the three markets, and sell at the highest price available, the concept of a merchant project becomes financially attractive.”
A national marketplace opens the opportunity to sell midday Southwestern solar into the East Coast’s late afternoon peak demand period and to sell pre-dawn Western wind into the East Coast’s midmorning peak. Merchant projects become potentially more profitable than projects with PPAs when those higher per-kilowatt-hour peak demand opportunities are available.
Tres Amigas will provide the same open access same time information system(OASIS) available through RTOs like PJM. “Power producers will make known what power is available at what price and buyers will engage in transactions for five and fifteen minutes ahead, hour ahead, or long term power,” Stidham said. “That is where the cash register is.”
The big questions
There are two big questions facing Tres Amigas, Hoecker said. The first is whether the takeaway capacity is substantial enough to justify the expense. The other is whether jurisdictional questions with the notoriously independentElectric Reliability Council of Texas (ERCOT) system can be resolved.
Both of those questions have answers, according to Stidham who—as former Xcel Energy Director of Power Engineering—knows transmission takeaway capacity. And as the developer of 782 megawatts of Texas wind for EON Climate and Renewables, he also knows ERCOT.
From the 1970s, FERC agreed that ERCOT does not conduct interstate commerce and therefore is excluded from jurisdiction under the Federal Power Act, former FERC Chair Hoecker said. ERCOT was granted further exclusions in the Energy Policy Act of 2005. But that Act made ERCOT subject to federal reliability provisions and made its jurisdictional independence questionable, Hoecker said. As part of a nationally interconnected system, those questions could be more potent.
FERC’s ruling on the Pattern Energy Southern Cross HVDC transmission project, which will deliver Texas wind to the Southeast, makes ERCOT’s jurisdictional independence secure, Stidham explained.
Under provisions of sections 210 and 211 of the Federal Power Act, FERC:
- directed the City of Garland, Texas, to interconnect with Southern Cross
- directed Oncor and CenterPoint to provide transmission into and out of ERCOT, and
- affirmed that none of the stakeholders, including ERCOT, was subject to FERC jurisdiction.
As for takeaway capacity, Stidham said, the voltage source converters (VSCs) that Tres Amigas will employ at the core of its system will both increase carrying capacity and help protect reliability by keeping voltage at safe levels.
“It can direct up to 40% of its capacity in reactive power, in directions independent of real power, so that it can act as a static VAR compensator instantly supporting or reducing voltage as needed,” Stidham explained. “It also allows generation to be injected into the line so that wind generated electricity, for example, could be kept flowing at 100% capacity even if the line’s owner is only using 45% of its capacity.”
“The power electronics are pretty well understood technology,” Hoecker acknowledged. “It simply converts DC power to AC and vice versa.”
If they build it, who will come?
Hoecker raised questions about financing and participants.” If the bankers are serious about this, it means they have identified commercial opportunities.”
“UBS and Goldman Sachs are arranging the financing,” Stidham said. Harris is talking to undisclosed potential utility purchasers, backers of Real Estate Investment Trusts, and equity investors.
“The financing must be completed by the end of 2014,” Stidam explained. If it is not, Tres Amigas will lose its place in FERC’s interconnect queue and FERC-approved interconnect agreements with PNM, Xcel, and the Southwest Power Pool—key elements in investor presentations—will have to be done over.
“There is nothing firm with power producers or investors but this is one of those if-you-build-it-they-will-come situations,” Stidham said. “There are a lot of renewable and hybrid generation facilities waiting for us to get financing and break ground. That will allow them to get financing because they will be able to show a path to multiple markets.”
Construction is expected to take 33 months, Stidham said. The project is almost completely permitted. What is left will be in New Mexico, where Tres Amigas has access to County rights-of-way, and in Texas, where the CREZ process established streamlined procedures. With no federal land involved, there should be none of the complexities and delays in NEPA permitting.
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