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Power Flows, Part 2: Transmission Lowers US Generation Costs, But Generator Incentives Are Not Aligned

Author

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  • Kay, Owen
  • Hausman, Catherine
  • Ham, Dasom

Abstract

The US electrical grid is experiencing a rapid transition as cheap renewable electricity transforms the energy mix. With these grid changes, new supply is not spatially matched to demand, and the transmission network has become more strained. Better market integration could thus lower US generation costs. This report estimates the excess generation costs associated with transmission congestion and other spatial constraints across the lower 48 states, as an extension of a 2024 report on the MISO/SPP regions. We document that eliminating interregional constraints would have reduced generation costs by $5.8–7.1 billion in 2022 and $3.4–5.0 billion in 2023. Despite these overall potential cost savings, we show that market integration creates winners and losers among generation companies—of interest because generators have a large say in whether transmission projects are developed. We show clear spatial patterns in generation company outcomes, documenting that producers in some regions have incentives to delay or block grid integration despite the overall system benefits.Keywords: Electricity markets, transmission constraints, renewable energy, market integration, political economy of energy markets, energy transitionJEL Codes: L94, P18, Q41, Q42, Q48

Suggested Citation

  • Kay, Owen & Hausman, Catherine & Ham, Dasom, 2025. "Power Flows, Part 2: Transmission Lowers US Generation Costs, But Generator Incentives Are Not Aligned," RFF Working Paper Series 25-10, Resources for the Future.
  • Handle: RePEc:rff:dpaper:dp-25-10
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    File URL: https://www.rff.org/documents/4852/WP_25-10_kFRJaAE.pdf
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    More about this item

    Keywords

    electricity markets; transmission constraints; renewable energy; market integration; political economy of energy markets; energy transitionjel codes: l94; p18; q41; q42; q48;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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