A big revelation about the market viability of independently built high capacity transmission is coming early 2015.

A handful of pioneers are trying to get such lines permitted, financed, and built to connect parts of the Balkanized U.S. grid into a national transmission system. Those lines will require commitments from independent power producers (IPPs) at one end and the entities that buy that power to serve their customers’ loads at the other.

The transmission line developers typically find preliminary independent financing and use it to work through the onerous, time-consuming permitting process before approaching IPPs and load serving entities (LSEs) to commit to using the line.

ITC Holdings, the nation's largest independent transmission company, is about to break that pattern.

The Lake Erie Connector

After Jan. 1, 2015 ITC will go out to IPPs in renewables-rich Ontario and to LSEs in the energy-hungry PJM Interconnection region. It has 1,000 megawatts of capacity to sell on its proposed Lake Erie Connector. The response from the line’s would-be users will be an early look at the market viability of this and other independently-developed high voltage direct current (HVDC) transmission.

ITC Holdings has developed some 26,000 megawatts of transmission capacity and 15,000 miles of line in the Midcontinent ISO, Southwest Power Pool, and PJM Interconnection Regional Transmission Organizations (RTOs) since its 2003 founding. Current annual operating revenues are $792.0 million on total assets valued at $6.8 billion.

Unlike those assets, explained Grid Development VP Terry Harvill, “this one doesn’t exist yet. We are stepping away from our historic business model.” It was chosen because ITC decided it had sustainable long-term economics.

A merchant transmission line must have economics that are sustainable over its 30 year to 40 year life, according to Harvill. “This line would be the only direct line between Ontario and the PJM Interconnection energy market,” he said.

Between Canadian IPPs in Ontario and beyond and LSEs in the PJM market, there are potentially dozens of counter-parties, Harvill said. The economics already strongly support flowing power from north to south. And margins are expected to be even better by the time the line is in service, Harvill said, because higher state renewables mandates and the EPA Clean Power Plan will grow demand.

A merchant line

The types of power are expected to be across the board and ITC, as a transmission developer, is essentially agnostic, Harvill said. “But in Ontario, there is already a lot of hydro and renewables in service, with excess capacity looking for access to the U.S. markets.”

The 4,000 megawatts of transmission line capacity in Ontario were developed for electricity generated by the now-shuttered Nanticoke coal facility. It will, Harvill said, be more than ample to deliver Canada’s hydro and other resources to the voltage source converter (YSC) technology at the line’s north shore station. There it will be converted from AC to DC.

The 68-mile Lake Erie Connector, most of it on the floor of Lake Erie, will establish a direct current (DC) connection between Ontario’s Independent Electricity System Operator (IESO) and PJM, which has a service territory across 13 states and 60 million customers. 

The opportunity

“Our economic studies identified several thousand megawatts of hydro and renewables in Ontario and beyond looking to move from the lower priced Canadian market to the higher priced U.S. market,” Harvill said. “The studies found there is an even greater economic driver in 2019 when this line will go into service.”

This is the kind of opportunity that will make First Wind CEO Paul Gaynor’s vision of a new kind of renewables offering possible. He has already been talking to utilities in the northeast, including Connecticut Power & Light and National Grid in Massachusetts and Rhode Island, about a "clean firm" product. “It merges Canadian hydro resources, either from Newfoundland-Labrador or Quebec-Ontario, and New England wind into one transmission asset delivered to urban centers,” Gaynor explained. “That brings the delivered cost of energy way down. That’s where the magic happens.”

By eliminating fuel prices and suppressing natural gas price volatility, First Wind calculates such a 1,000 megawatt PPA would save Massachusetts ratepayers an annual $1 billion of the $6 billion they spend every year for electricity. “Between now and the end of this decade, those types of opportunities will be real,” Gaynor recently predicted.

Challenges ahead

ITC has already obtained authority from the Federal Energy Regulatory Commission for approaching counter-parties through the formal solicitation that opens in January. At the same time, it will file for permits with Canada’s National Energy Board and with the U.S. Department of Energy. 

It also must file with the U.S. State Department. “We have to obtain a Presidential Permit because the line crosses the international border,” Harvill said.

The Champlain Hudson Power Express line, which will deliver 1,000 megawatts of Canadian resources to New York City, was awarded a Presidential Permit in October. The 333 mile HVDC line will be undergrounded on land as well as beneath Lake Champlain and the Hudson River. Backed by the Blackstone Group, its would-be builders began development in 2008.

ITC’s filings will initiate a series of environmental studies. “One of the primary environmental issues with Lake Erie is shipwrecks on the bottom that we will have to navigate around,” Harvill explained.

Most transmission project developers have discovered new environmental and other issues as they proceeded. That may explain why ITC is only in preliminary discussions with engineering, procurement, and construction (EPC) contractors and with HVDC cable and equipment providers like ABB and Siemens.

Next year’s regulatory filings will take a least a year to complete, Harvill said. Financing will be handled simultaneously. Meanwhile, they are using existing detailed maps and advanced desktop surveying to plan a preliminary route across Lake Erie’s floor. “We are looking to put a shovel in the ground no later than 2017.”

For a look at just how companies construct underwater transmission cables, check out this ITC video:

Editor's Note: This is the tenth piece in an ongoing Utility Dive series on new high voltage transmission. Other installments in the series are:

What happened to that national high voltage transmission system? Clean Line and others are still pioneering lines for remote renewables.

Can Warren Buffett's Pacificorp bring the Northwest's renewable riches to market? The Energy Gateway will change the way America uses energy — when it gets finished.

How new transmission will bring Wyoming wind to California: President Obama’s transmission plan aims to bring remote renewables to load centers.

How to build high voltage transmission in America: Projects are struggling with permitting across the country, but PSE&G and PPL got it done.

Is SunZia ready to deliver New Mexico wind to Phoenix and Los Angeles? After years of fighting for permits, SunZia is about to get a green light—or a lawsuit.

Idaho Power's vital Boardman-to-Hemingway transmission line wrestles with permitting; Instead of delivering renewables, it’s struggling over sage grouses and ground squirrels.

One grid to rule them all: Is a national transmission system coming to America? A bold idea to interconnect the nation’s three grids is just a financing agreement away

Grid of the future: How transmission and new technologies can work together; Ex-FERC Chairman: "We may get to the point where we don't need a network of wires. But I can't foresee that.

Midwest renewables take a big step closer to eastern markets; Illinois regulators approve Clean Line project from Iowa to PJM, will soon consider a line from Kansas