THE BRATTLE GROUP

“regrets” is just as high when decisions about long-lived assets are made solely based on near-term
considerations. Shying away from making investment decisions because of difficulties in predicting
the future could lead to a perpetual focus on transmission upgrades that address only the most
urgent near-term needs, such as reliability violations, and thereby forego opportunities to capture
higher values by making investments that could address longer-term needs much more effectively.
It is also likely to lead to inefficient use of scarce resources, such as available transmission corridors
and rights-of-way. To address this challenge, we recommend that transmission planners evaluate
long-term uncertainties through scenario-based analyses. Such scenario-based long-term planning
approaches are widely used by other industries (such as the oil and gas industry) 60 and have also
been employed in most transmission planning efforts. However, the scenarios specified in
transmission planning processes take into account only a very limited degree of divergent
assumptions about renewable energy additions, load levels, and a few other factors.
Evaluating long-term uncertainties through various distinctive future scenarios is important given
the long useful life of new transmission facilities that can exceed four or five decades. Long-term
uncertainties around fuel price trends, locations, and size of future load and generation patterns,
economic and public policy-driven changes to future market rules or industry structure, and
technological changes can substantially affect the need and size of future transmission projects.
Results from scenario-based analyses of these long-term uncertainties can be used to: (1) identify
“least-regrets” projects who mitigate the risk of high-cost outcomes and whose value would be
robust across most futures; and (2) identify or evaluate possible project modifications (such as
building a single circuit line on double circuit towers) in order to create valuable options that can be
exercised in the future depending on how the industry actually evolves. In other words, the range
in long-term values of economic transmission projects under the various scenarios should be used
both to assess the robustness of a project’s cost effectiveness and to help identify project
modifications that increase the flexibility of the system to adapt to changing market conditions.
In addition to a scenario-based consideration of long-term uncertainties, we recommend that shortterm
uncertainties be considered separately. Short-term uncertainties that exist within any one of
the scenarios—such as weather-related load fluctuations, hydrological uncertainties, short- and
medium-term fuel price volatility, and generation and transmission contingencies—should not
drive scenario definitions. These uncertainties should be simulated probabilistically or through
sensitivity analyses for each of the chosen scenarios to capture the full range of the societal value of
transmission investments. 61
60
For example, see Royal Dutch Shell (2013). See also Wilkinson and Kupers (2013).
61
For simplified frameworks taking into account both long-term and short-term uncertainties for
transmission planning in the context of renewable generation expansion, see Munoz, et al. (2013); Van
Der Weijde and Hobbs (2012); and Park and Baldick (2013).
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