Historically, transmission infrastructure has been built to link electricity generation with demand centers. Accordingly, it has been common to levy transmission infrastructure charges on customers’ peak demand, which has tended to drive these costs. However, the drivers of transmission costs are changing. Large scale integration of utility scale renewables requires significant investment in transmission infrastructure. With rising costs, designers of network tariffs now face the challenge of recovering these new costs through transmission infrastructure tariffs, which should also send price signals encouraging the efficient use and development of the grid.

In this white paper, Senior Managing Director Richard Druce and Senior Consultant/ Principal Michael Dawes note that transmission costs associated with integrating renewables are not driven by the need to meet peaks in demand, so using peak demand charges (or standing charges) to recover costs may not be cost reflective. Instead, transmission costs are driven by the need to serve customers’ energy demand from low carbon generation resources. The authors conclude that well-designed energy-based charges may efficiently recover the transmission infrastructure costs driven by renewable integration. Such charges can be cost-reflective and adhere to the beneficiary pays principle of tariff design.