GENERAL POTENTIAL BENEFITS OF GRID INTERCONNECTIONS

There are number of technical rationales for grid interconnections, many of which have economic components as well. Technical rationales for grid interconnection include:

• Improving reliability and pooling reserves: The amount of reserve capacity that must be built by individual networks to ensure reliable operation when supplies are short can be reduced by sharing reserves within an interconnected network.

• Reduced investment in generating capacity: Individual systems can reduce their generating capacity requirement, or postpone the need to add new capacity, if they are able to share the generating resources of an interconnected system.

• Improving load factor and increasing load diversity: Systems operate most economically when the level of power demand is steady over time, as opposed to having high peaks. Poor load factors (the ratio of average to peak power demand) mean that utilities must construct generation capacity to meet peak requirements, but that this capacity sits idle much of the time. Systems can improve poor load factors by interconnecting to other systems with different types of loads, or loads with different daily or seasonal patterns that complement their own.

• Economies of scale in new construction: Unit costs of new generation and transmission capacity generally decline with increasing scale, up to a point. Sharing resources in an interconnected system can allow the construction of larger facilities with lower unit costs.

• Diversity of generation mix and supply security: Interconnections between systems that use different technologies and/or fuels to generate electricity provide greater security in the event that one kind of generation becomes limited (e.g., hydroelectricity in a year with little rainfall). Historically, this complementary has been a strong incentive for interconnection between hydro-dominated systems and thermal-dominated systems. A larger and more diverse generation mix also implies more diversity in the types of forced outages that occur, improving reliability.

• Economic exchange: Interconnection allows the dispatch of the least costly generating units within the interconnected area, providing an overall cost savings that can be divided among the component systems. Alternatively, it allows inexpensive power from one system to be sold to systems with more expensive power.

• Environmental dispatch and new plant sitting: Interconnections can allow generating units with lower environmental impacts to be used more, and units with higher impacts to be used less. In areas where environmental and land use constraints limit the sitting of power plants, interconnections can allow new plant construction in less sensitive areas.

• Coordination of maintenance schedules: Interconnections permit planned outages of generating and transmission facilities for maintenance to be coordinated so that overall cost and reliability for the interconnected network is optimized.

Some costs and benefits of interconnections are difficult to quantify, but as a rough figure of merit it has been estimated that interconnections in North America have resulted in an overall annual cost savings of $20 billion in the 1990s, and that the Western European interconnection has resulted in reduced capacity requirements of 7-10 percent.