Transmission Access Pricing for Renewable Energy Generation

Publication | December 2012

The contribution of transmission access pricing in promoting renewable energy is akin to the role of a pit crew member in a Formula 1 race. It is out of the spotlight, but can make or break the outcome. This study attempts to refocus that spotlight onto the less-seen role transmission access pricing plays. In doing so, the study derives from real issues faced by the executing agency of an ADB-funded loan program in the upgrading of transmission system capacity in Himachal Pradesh, India. Himachal Pradesh is a small, mountainous state in India's northern Himalaya region and has a policy mandate to maximize its considerable hydropower potential.

Given the planned hydropower capacity additions within the state, analyses have concluded that it was not just a least-cost solution, but a solution that was beneficial for environmental and other reasons, to maximize transmission line capacity in certain locations, "upfront". Excess capacity would only be fully utilized over time as planned hydropower projects come on line. Constructing surplus transmission capacity for future users raises three important questions, however:

  • is the surplus capacity justified from an economic (that is, a societal) point of view?
  • if the surplus capacity is justified, who should pay for it?, and
  • how, i.e., by what pricing mechanism, should it be paid for?

Similar issues arise in other Indian states with ADB involvement, such as in Rajasthan, where there is a need to increase transmission capacity to accommodate solar and wind power generation development plans. As this is a widespread issue faced in many countries promoting renewable energy development, this study is a review-in-progress of pricing approaches used in various countries with similar regulatory environments. From these examples it is possible for policy makers to examine approaches which may be relevant to their particular needs. The purpose of this paper is to give an overview of various approaches used in different jurisdictions, but with similar and standard tariff pricing regimes. This can assist policy makers on how best to promote transmission system expansion to support renewable energy in their jurisdictions in an equitable and cost effective manner.

Contents 

  • Abstract
  • Introduction
  • Regulatory Background
  • Indian Context
  • Approaches in Other Jurisdictions
  • Transmission Pricing Options
  • Conclusion
  • References
  • Appendixes