Power Delayed: Economic Effects of Electricity Transmission and Generation Development Delays

The United States is entering a period of rapid electricity demand growth spurred by electrification of buildings and transport, a renewed emphasis on domestic manufacturing, and a booming data center market. At the same time, a combination of challenges has extended typical development timelines to 10 years for transmission and 5 years for generation infrastructure (Solomon 2023; Rand et al. 2024). These long timelines slow cost-reducing system additions and compound the difficulty of meeting the new demand. Delaying the build-out of energy infrastructure also increases system congestion and thereby reduces the resilience and reliability of the grid. In this paper, we estimate some of the major effects of having longer development timelines like the current ones, which we term “delays.”We estimate the effects of such delays on the generation resource mix, costs for electricity and natural gas customers, profits of the electricity and natural gas supply industries, government revenue, and network congestion for the entire US and Canadian power system. We find that these delays cause electricity scarcity, which leads to increased energy bills and system congestion. The resulting changes to the generation mix increase the emissions from the power sector. Delays also have some positive economic effects, such as increased energy producer profit and higher government tax revenue. We find that the effects of the transmission development delays are similar to those of the generation development delays, per billion dollars of investment (levelized cost) delayed. Our results indicate that shortening the development times for transmission and generation in the United States and Canada would be likely to save energy customers tens of billions of dollars per year and reduce transmission congestion considerably.For our analysis, we use the Engineering, Economic, and Environmental Electricity Simulation Tool (E4ST), a detailed simulation model of the US and Canadian electricity sector. E4ST predicts hourly system operation, generator construction, generator retirements, system costs, and other outcomes under each simulated set of circumstances. We focus on outcomes that are realized in the year 2032. To estimate the effects of delays, we simulate the future with and without a shift in a set of transmission or generation investments that would have occurred by 2032 to after 2032. In the simulations with delays, we allow existing generators to defer their retirements but limit what generators can be constructed that are not built in the no-delays simulation. The set of delayed transmission investments represents 6 percent of US and Canadian transmission megawatt-miles (MW-miles). This deferred investment represents between one and several years’ worth of transmission investments, depending on the period of comparison. We represent generation development delays by reducing wind-, solar-, and gas-fueled generation capacity added between 2028 and 2032 (“new capacity”) by 20 percent each. The delayed generation investments equal 4 percent of total generation capacity, or approximately one year of projected generation capacity additions. Our results can be used in the evaluation of the costs and benefits of policy changes or regulatory or process changes that would shorten or lengthen development times.Our central set of background assumptions includes the US Inflation Reduction Act tax credits for new nonemitting generators and existing nuclear generators. It omits the 2024 EPA greenhouse gas rules and the 2024 Good Neighbor Plan for NOx emissions, as they are likely to be revised under the current administration. In three alternative sets of background assumptions (sensitivity cases), we employ different policy assumptions or technology costs.Our results show that delays have a negative impact on the development of both emitting and nonemitting generators. While the magnitude of prevented capacity additions is greater for wind and solar, this is mainly because, in all scenarios, investors choose to build more wind- and solar-powered capacity than natural gas–fueled capacity. Across all cases, we find that the transmission and generation delays reduce the construction of generation facilities powered by wind, sun, and natural gas approximately in proportion to their shares of new capacity additions (all between 20 and 29 percent). This means that transmission capacity additions are approximately as likely to be important for a given new gas-fueled generator as for a given new wind or solar generation farm.Despite reducing new wind-, solar-, and gas-powered capacity by similar proportions, the delays increase gas-fueled (and coal-fueled) generation and reduce wind- and solar-powered generation. The main reason is that gas- and coal-fueled generators are the existing generators that can most commonly generate more, through a higher utilization rate or deferral of retirement. In the transmission-delays scenario, gas- and coal-fueled generation rises by 9 percent, while wind- and solar-powered generation decreases by 7 percent, compared with the scenario without the delays. In the generation-delays scenario central case, gas- and coal-fueled generation increases by 7 percent, while wind- and solar-powered generation decreases by 6 percent, compared with the scenario without the delays.Transmission and generation delays can also increase system congestion, meaning transmission lines are being operated at their limits more frequently. Transmission line congestion can reduce the efficiency, reliability, and resilience of the power system and lead to higher electricity costs. We find that transmission and generation delays increase system congestion across all cases. With our central background assumptions, the transmission delays increase system congestion by 14 percent, and the generation delays increase it by 7 percent.Changes to the mix of grid resources and to system operation are consequential for costs and prices in the power system. They affect the economic outcomes for consumers, producers, and the government. Different generation facilities have different capital and operation costs, and transmission and generation constraints increase electricity scarcity and prices. Further, higher natural gas demand within the electric power sector increases the cost of natural gas for both power plants and other gas users. The delays affect government tax revenue mainly by changing the amount of generation capacity built that qualifies for federal tax credits.The deferral of transmission and generation investments produces the effects described in this paper, some of which are costs. It also results in what we describe as capital cost savings, which simply refers to the savings associated with not building new transmission and generation. The estimated annual capital cost savings from either the transmission development or generation investment delays are $5 billion. We assume that the transmission capital cost savings accrues to electricity users and the generation capital cost savings to generation investors. This benefit of the delays can be compared with the costs for electricity users:The modeled transmission delays increase the cost of electricity and natural gas together by $22 billion (or $27 billion before counting the transmission capital cost savings). Hence the net cost to energy users is more than four times the capital cost savings. A $22 billion increase is $55 per capita, which represents a 3 percent increase of economy-wide retail spending on electricity and natural gas. The electricity price increase is a third of a cent per kilowatt-hour (kWh).The modeled generation delays increase the cost of electricity and natural gas together by $28 billion. This cost to energy users is more than five times the capital cost savings. A $28 billion increase is $70 per capita, which represents a 4 percent increase of economy-wide retail spending on electricity and natural gas. The electricity price increase is 0.45 cents per kWh.The model estimates of price increases from the delays are not unreasonably large; in 2024, capacity prices in PJM, which serves one-sixth of the US and Canadian population, increased by $12 billion.We also find that certain stakeholders benefit from the delays across all cases. In the central case, we estimate the following:The transmission delays increase the total profits of electricity and gas producers together by $19 billion, through higher electricity and natural gas prices.The generation delays increase the total profits of electricity and gas producers together by $22 billion (or $17 billion before counting the generation capital cost savings), through higher electricity and natural gas prices.Transmission and generation delays increase government tax revenue by $10 billion and $7 billion, respectively, because there are fewer generators that receive government incentives.The results are similar in the sensitivity cases. The largest difference is that the costs, benefits, and net costs of the delays are larger in the sensitivity case with higher wind and solar costs, and the delays increase tax revenue much less in the sensitivity case without the Inflation Reduction Act incentives for clean generation.In our second paper, we estimate and incorporate the effects of the delays on air pollution, mortality from air pollution, climate change damages, and disadvantaged Americans to better characterize the full net costs of transmission and generation delays. Other effects we have not included in this paper include the costs of financing projects longer before they start producing, the costs of projects canceled because of delays, the effects of slowed technology advancement, and the detriment to customers that must delay expansion plans (e.g., new data center, factory, or home) as a result of the transmission or generation delays.