Expanding transmission and improving electric grid integration across U.S. regions could cut electricity generation costs by billions annually, according to new research.
Electric grid integration could lower power generation costs
Electric grid integration across the United States could generate savings of up to $7.1 billion per year in electricity generation costs, while at the same time reducing profits for some power plants.
The finding emerges from the study “Transmission lowers US generation costs, but generator incentives are not aligned”, published in the journal Proceedings of the National Academy of Sciences and conducted by economists at the University of Michigan.
The research analyzed how the power grid operates across the 48 contiguous U.S. states and shows that removing barriers between regional electricity systems would allow greater use of lower-cost power plants, reducing overall system costs.
However, the same integration process would create winners and losers among electricity producers, potentially generating financial incentives to slow or block the expansion of transmission infrastructure.
The cost of limited grid integration
The study provides one of the first national-scale estimates of the economic impact caused by constraints in electricity transmission between regions.
According to the authors’ simulations, removing spatial constraints in the power grid would have reduced U.S. generation costs by:
- $5.8–$7.1 billion in 2022
- $3.4–$5 billion in 2023
These figures represent the additional costs the electricity system incurs when power cannot move freely between regions.
The phenomenon has become more visible in recent years for two main reasons: the rapid growth of renewable energy generation, often located far from major demand centers, and the spike in natural gas prices in 2022, which widened cost differences between power plants.
The researchers note that these estimates are likely conservative because the model considers only immediate generation savings and does not include other potential benefits, such as lower emissions or long-term investment effects in the power system.
Interregional transmission is critical for renewables
Electric grid integration becomes increasingly important as renewable energy capacity expands.
Regions with the strongest wind and solar resources in the United States, such as the Great Plains and the Midwest, are often located far from major consumption hubs along the coasts. Without sufficient transmission capacity, electricity generated in these regions cannot reach markets where demand is highest.
This imbalance produces two opposite effects: extremely low prices in renewable-rich regions where supply exceeds demand, and higher prices in urban centers where electricity must be generated by more expensive plants.
Greater electric grid integration would reduce these disparities by allowing lower-cost electricity to flow to areas with stronger demand.
Not all power producers benefit from integration
A key conclusion of the study concerns the economic incentives facing electricity producers.
The simulations show that grid integration does not distribute benefits evenly among market participants. Some plants would see revenues increase, while others would face significant losses.
Generators in the Great Lakes region and the Great Plains would likely gain revenue, while producers in parts of the Northeast, Southeast and California could see earnings decline.
In some cases, losses could exceed $20 million in annual net revenue per plant. The reason is straightforward: market integration tends to lower prices in regions where electricity is currently more expensive, intensifying competition among producers.
Economic incentives may slow transmission expansion
These economic effects can directly influence infrastructure development.
In the United States, transmission planning is often managed by regional organizations in which electricity generation companies hold significant decision-making influence.
In such governance structures, companies facing potential revenue losses may have incentives to delay or oppose new transmission projects.
The result is a paradox: the electricity system as a whole could save billions of dollars, yet some operators may have financial incentives to resist reforms.
The authors therefore stress that future energy policies and grid governance reforms must consider not only overall system benefits but also the economic interests of power producers.
Grid governance becomes a strategic issue
The study concludes that building new transmission infrastructure depends on more than engineering or financing considerations.
Key barriers to grid expansion include:
- disagreements over how to allocate the costs of new transmission lines
- permitting challenges and land use constraints
- delays in grid interconnection procedures
Added to these issues is the conflict between individual corporate incentives and the broader efficiency of the energy system.
According to the authors, understanding these dynamics will be essential for designing policies that support electric grid integration and allow the full potential of renewable energy to be realized.
