Unlocking the Potential of Merchant Transmission for Renewable Developers

Authored by: Bhaskar Ray and Sumeet Mudgal

As renewable energy development accelerates in North America, the demand for efficient, scalable new transmission solutions has never been greater. Merchant Transmission (MT) development offers an innovative pathway for renewable developers to overcome utility-owned grid constraints, access new energy markets, and future-proof their projects in an increasingly competitive landscape. Large influx of new generation applications in utility interconnection queues have absorbed all residual transmission capacity and triggered significant grid congestion in all regions of the existing grid.

Key Benefits of Merchant Transmission for Renewable Developers

1. Reduced Grid Congestion Merchant transmission lines help bypass grid congestion, ensuring that renewable energy projects can deliver power efficiently. This not only reduces transmission costs but also improves the deliverability of energy to critical markets, enhancing project viability.
2. Access to New Markets MT opens the door to regions with high demand for renewable energy. By providing developers access to underserved markets, MT enables them to tap into areas where renewable portfolio standards are driving growth. This supports both the expansion of green energy and the developers’ ability to secure higher returns.
3. Alignment with Regional Renewable Goals Merchant transmission plays a critical role in helping developers align with regional renewable energy goals. By connecting renewable energy sources to grids that need it the most, MT supports clean energy targets and can help developers benefit from favorable policies, subsidies, and tax incentives.
4. Future-Proof Investments As the energy market evolves, investing in MT infrastructure helps developers safeguard their projects for the future. MT is essential for staying competitive in the renewable energy market, offering solutions that are adaptable to changing regulatory environments and market conditions.
5. Collaboration Opportunities MT projects often involve collaboration with various stakeholders, including government entities and utilities. These partnerships can create new growth opportunities for developers, enabling them to expand their project portfolios while building stronger ties with key industry players.
6. Cost Savings from Competitive Solicitation Merchant transmission projects introduce competitive processes that can lead to significant cost savings. While the sample size of competitive projects remains small, early results have demonstrated substantial savings for developers, especially those operating outside of the full regional transmission planning process.

Two Pathways for Transmission Development

• Transmission Identified by ISOs Independent System Operators (ISOs) can identify transmission projects that meet specific criteria for competitive solicitation. Renewable developers can benefit by participating in bids, with the opportunity to earn a fixed rate of return on their investment (typically 9-11%).
• Developer-Initiated Transmission Projects Developers can initiate transmission projects using the Federal Energy Regulatory Commission (FERC) subscriber-funded model. This approach allows early subscribers to recover costs by paying for the project upfront while receiving scheduling priority and exemption from transmission service charges.

Four Pillars of Merchant Transmission Development

1. Understanding the Market and Regulation
   • A successful Merchant Transmission (MT) project requires a deep understanding of energy markets and regulatory frameworks. This includes federal and state policies affecting transmission lines, grid access, and renewable energy integration. Developers must navigate FERC regulations and regional market rules to align their projects with existing transmission infrastructure and ensure compliance with energy market requirements.
2. Feasibility Studies
   • Conducting comprehensive feasibility studies is critical for identifying viable locations and assessing the technical and economic aspects of MT projects. Using tools like PSS/E, TARA, and PROMOD software, developers can simulate grid conditions, project potential cost savings, and evaluate grid enhancements. These studies provide insights into the most strategic areas for transmission development, ensuring optimal performance and return on investment.
3. Land Acquisition, Permitting, Design, and Engineering
   • Securing the necessary land, permits, and approvals is a key step in MT development. Developers must navigate local, state, and federal regulations to obtain land rights and environmental permits. The design and engineering phase involves detailed planning of transmission infrastructure, often requiring collaboration with contractors and experts to meet technical standards and ensure seamless integration into the grid.
4. Securing Funding and Partnerships
   • Financing is a cornerstone of MT development. Developers must create a detailed business plan to attract investment and secure funding, often leveraging programs like the DOE Loan Guarantee Program. Additionally, partnerships with government agencies, utilities, and private stakeholders are essential for sharing risk, securing long-term contracts, and ensuring project success. Collaboration can also open doors to additional revenue streams and strategic opportunities.

Grants supporting Merchant Transmission Development

The U.S. Department of Energy (DOE) offers several grants and programs that support the development of Merchant Transmission (MT) projects, with a focus on expanding grid capacity and integrating renewable energy. Here are some key DOE grants and programs available for merchant transmission:

1. Grid Resilience and Innovation Partnerships (GRIP) Program

• Purpose: This program focuses on enhancing grid flexibility and improving the resilience of the power system against climate change and extreme weather threats.
• Funding: Part of the Bipartisan Infrastructure Law, GRIP offers $10.5 billion in investments.
• Opportunity: MT projects can apply for funding to support transmission infrastructure that improves grid reliability and ensures that renewable energy is reliably delivered when and where it is needed.

2. Transmission Facilitation Program (TFP)

• Purpose: This program helps overcome financial hurdles associated with developing large-scale transmission lines and upgrading existing lines.
• Funding: The TFP offers $2.5 billion in revolving fund borrowing authority.
• Opportunity: Merchant transmission projects can access this fund to secure loans, participate in public-private partnerships, or take advantage of capacity contracts where the DOE acts as an “anchor customer.” This is particularly useful for enabling long-term financial viability for MT projects.

3. Coordinated Interagency Transmission Authorizations and Permits Program (CITAP)

• Purpose: CITAP streamlines federal environmental reviews and approvals for transmission projects.
• Opportunity: While not a direct grant, CITAP provides regulatory support for MT projects by coordinating the necessary permits and reducing the bureaucratic delays, making it easier to bring transmission projects online in a timely manner.

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Conclusion

Merchant Transmission offers renewable energy developers a unique and financially attractive opportunity to overcome transmission bottlenecks, avoid paying large lumpsum non-reimbursable grid upgrade costs, access new markets, and position themselves for long-term success. By leveraging MT, developers can unlock new opportunities, enhance project efficiency, and contribute to a more sustainable energy future.