US Power Sector’s Total Congestion Costs Reaches $20.8 Billion in 2022

Renewable sources are often curtailed due to insufficient transmission capacity


Congestion costs in regional transmission organization (RTO) regions, excluding the California Independent System Operator (CAISO) region, amounted to $12.1 billion in 2022. Extrapolating these figures to include CAISO and the rest of the United States brings the total congestion costs to $20.8 billion, according to a report by power sector consulting firm Grid Strategies.

The exponential growth in congestion costs is due to the frequent reliance on higher-cost thermal generators, as renewable energy sources are often curtailed due to insufficient transmission capacity. This trend is further exacerbated by increased system vulnerability to extreme weather, rising electricity demand, and the preference for clean energy sources often geographically distant from consumers.

Annual internal market congestion costs in the U.S. power sector have experienced significant growth in recent years, posing consumer challenges and highlighting the urgent need for transmission infrastructure upgrades.

Congestion costs, which occur when inadequate transmission capacity hinders the delivery of low-cost electricity generation, have nearly doubled from 2020 to 2021 and increased by approximately 56% from 2021 to 2022 across the RTOs and Independent System Operators (ISO). These entities serve around 58% of the country’s electricity load, making congestion costs a pressing issue affecting consumers.

While congestion data in non-RTO regions are not readily available, it can be assumed that congestion outside these transparent markets mirrors that within them. The price transparency and favorable transmission expansion policies in RTO regions tend to reduce congestion compared to non-RTO areas.

Insufficient investments

Increasing transmission capacity remains the most effective strategy to alleviate congestion. However, the investment in new large-scale, high-voltage transmission lines has been insufficient. This is despite the escalating need arising from heightened vulnerability to extreme weather events, growing electricity demand, and increased reliance on variable and clean energy sources far from consumers.

Additionally, the adoption of grid-enhancing technologies (GETs), such as dynamic line ratings, advanced power flow control, and topology optimization, which optimize existing grid infrastructure, has been limited among U.S. utilities.

Certain regions, such as New England, may experience minimal internal congestion but face significant congestion at interregional interfaces, such as the New York-New England connection. Inadequate regional and interregional transmission capacity is the root cause of congestion. It occurs when lower-cost generation cannot reach customers, forcing the dispatch of higher-cost alternatives and raising prices. The construction of new high-voltage transmission lines has considerably decreased since 2010, exacerbating congestion-related issues.

Volatility in fuel prices, particularly natural gas, and coal, contributes to high congestion, as cited by various RTO market monitor reports. Wholesale natural gas prices in the U.S. reached their highest level since 2008, increasing by over 53% from 2021. Transmission outages resulting from scheduled maintenance and upgrades, along with extreme weather events like Winter Storm Elliott in December 2022, have also substantially exacerbated congestion costs.

Lawrence Berkeley National Laboratory found that regional and interregional transmission links are crucial in reducing congestion, with interregional links providing even greater benefits. Berkely Lab estimates that only 5% of hours contribute to 50% of transmission value, emphasizing the significant impact of extreme weather events on transmission systems. As extreme weather events have increased by 67% since 2000, the importance of interregional transfer capability and transmission infrastructure resilience continues to grow.

According to the Berkeley Lab, solar, storage, and wind projects accounted for 95% of over 2 TW of all proposed generation capacity awaiting connection to the grid in the U.S. at the end of 2022.

Marginal value

While RTOs/ISOs mitigate congestion through security-constrained economic commitment and dispatch, transmission expansion planning does not consistently prioritize regional transmission congestion cost reduction. Furthermore, interregional congestion cost reduction opportunities are not adequately considered in RTO/ISO transmission planning. State and federal regulators have an opportunity to assign responsibility for congestion management.

Addressing congestion requires long-term investment in large-scale, high-voltage transmission lines, which can take over a decade to develop. However, given the issue’s urgency, short-term solutions such as GETs can increase transmission capacity on existing infrastructure, alleviating up to 40% or more of congestion. Medium-term strategies, such as reconductoring with advanced conductors, involve replacing traditional steel and wire cores with carbon and composite cores on existing towers and rights of way, enabling increased line capacity.

Last June, the U.S. government launched the Interconnection Innovation e-Xchange initiative to connect more green energy to the country’s grid. The initiative is aimed at cutting the waiting period for clean energy sources in interconnection queues while lowering the grid connection rates.