To transmit or not to transmit?

Once again the electrcity industry is struggling with the role of transmission in the power system. It is coming under the particular problem of transmission pricing and the role of locational signals for both generation and transmission.

Without getting into the details of locational pricing (which gets very complex very quickly) the fundamental question with transmission is whether one would rather have a local power station and no transmission or a remote power station with transmission. All the locational pricing is trying to do is to signal the preference between these two basic choices.

Local generation has its attraction. It means that you don't need expensive transmission. Potentially it can be smaller and less obtrusive. However, remote generation has significant benefits. A remote power station can be located to a large fuel source. The best renewable fuel sources are only rarely located in perfectly convenient locations. Remote power stations tend to be relatively large (which means it can be an advantage for them to be located remotely) but then require large transmission (which causes its own problems for those it passes). The costs of easements and access are making transmission more and more expensive.

Larger power stations located on good fuel sources have significant economies of scale, though. It gets proportionally cheaper to build something larger. Transmission has very large economies of scale. Once you have decided on the need for a transmission line it does not cost significantly more to make it larger. If you are supplying a small number of people then economies of scale don't matter much. If you are supplying large numbers, on the other hand, then the effective cost of the large power station and transmission line becomes very attractive. Currently large remote power stations with transmission still easily beat most local options on a per unit cost basis.

But there is more to transmission than just transport. I think that it is implicitly assumed that once the economics of a local generator outweigh the remote generator then transmission and remote generation will become redundant. This isn't as clear as it seems. One of the other benefits of a geographically distributed electricity network is that it contains many generating units of many different type of technology and many transmission lines criss-crossing between them. The larger the network the less susceptible it is to the failure of any single piece of generation or transmission. A single local generator is much less reliable, a single failure on a local generator completely disrupts supply.

One of the problems that we might find is that, at the point when we think we have rendered the remote power stations and transmission network redundant (thanks to cheap local generation), may be the point that find we need them more than ever. The technology required to give the local generator the same level of reliability and quality as a large electricity network is expensive. And reliability in our electricity supply is clearly something that we want.

The discussion about locational signals transmission has made the claim that transmission networks tend to be overbuilt. If one only considers the comparison between local and remote generation for energy supply this view looks attractive; but transmission upgrades are justified on the basis of reliability not energy supply. Some experts would claim that energy markets inherently price reliability and this may be true to an extent. My question, though, is this - are we so sure that we have priced all the benefits of a large electricity network? If we all have our local generators would we actually be willing to disconnect from the reliable supply?