Can proactive electric transmission planning cost-effectively mitigate carbon emissions? A Western North America case study

Investment in transmission is recognized as essential to power system decarbonization, and at the same time it has been established that proactive grid planning can help mitigate market failures in electricity markets such as market power. In this paper, we bring these ideas together by exploring the extent to which transmission planning can proactively and cost-effectively reduce carbon emissions, while accounting for inefficient generation investment and operating incentives caused by the coexistence of inconsistent carbon regulation regimes within the same regional power market. Using a bilevel transmission planning model, we compare the economic efficiency of two proactive grid planning schemes to reduce carbon emissions (in comparison with a no-transmission-expansion benchmark) under three policy cases: no carbon policy; multiple sub-jurisdictions in a region with inconsistent policies (here called “heterogeneous subregional policies”); or consistent system-wide carbon policies. The two proactive planning schemes are a traditional co-optimization-based planning scheme based on minimizing in-market costs (i.e., system costs excluding costs of externalities), and a sustainable planning scheme where the grid planner accounts for system-wide carbon emission damage costs even though generation companies may be subject to no or heterogeneous subregional carbon pricing policies. In the bilevel model, the transmission planner at the upper level decides on locations and capacity of grid enhancements, whereas the generators, operators, and load-serving entities make generation expansion and dispatch decisions at the lower level. Based on the insights from both a simplified 3-node case study and a realistic 300-bus case study for the power system of western North America, we find that traditional co-optimization-based grid planning can yield some economically efficient CO2 emission reductions, especially in the absence of a system-wide carbon pricing policy and Renewable Portfolio Standard (RPS) policies. But when taking RPS into consideration together with a cleaner resource mix, traditional grid planning may provide little or no emission benefits due to the regional heterogeneity of policies. On the other hand, accounting for emissions in a sustainable proactive planning framework can provide additional emission reduction benefits at a reasonable cost when a sufficiently high value of carbon damage cost is considered.