Transmission Constraints, Intermittent Renewables and Welfare

We use the roll-out of a large transmission expansion in Texas’ electricity market to measure the market impacts of the transmission expansion on benefits of increased renewable capacity. We find large market benefits leading to a payback period of roughly 14 years. However, total welfare improvements from reduced congestion depend on how global non-market externalities are internalized by regional policy makers: accounting for non-market externalities reduces the payback period of this project from 14 to less than 9 years. We discuss the finding’s implications for the welfare of regional decisions to build transmission capacity for the U.S. wholesale electricity market.