Microgrids could cost 10% of undergrounding PG&E’s wires

One proposed solution to reducing wildfire risk is for PG&E to put its grid underground. There are a number of problems with undergrounding including increased maintenance costs, seismic and flooding risks, and problems with excessive heat (including exploding underground vaults). But ignoring those issues, the costs could be exorbitant-greater than anyone has really considered. An alternative is shifting rural service to microgrids. A high-level estimate shows that using microgrids instead could cost less than 10% of undergrounding the lines in regions at risk. The CPUC is considering a policy shift to promote this type of solution and has new rulemaking on promoting microgrids.

We can put this in context by estimating costs from PG&E’s data provided in its 2020 General Rate Case, and comparing that to its total revenue requirements. That will give us an estimate of the rate increase needed to fund this effort.

PG&E has about 107,000 miles of distribution voltage wires and 18,500 in transmission lines. PG&E listed 25,000 miles of distribution lines being in wildfire risk zones. The the risk is proportionate for transmission this is another 4,300 miles. PG&E has estimated that it would cost $3 million per mile to underground (and ignoring the higher maintenance and replacement costs). And undergrounding transmission can cost as much as $80 million per mile. Using estimates provided to the CAISO and picking the midpoint cost adder of four to ten times for undergrounding, we can estimate $25 million per mile for transmission is reasonable. Based on these estimates it would cost $75 billion to underground distribution and $108 billion for transmission, for a total cost of $183 billion. Using PG&E’s current cost of capital, that translates into annual revenue requirement of $9.1 billion.

PG&E’s overall annual revenue requirement are currently about $14 billion and PG&E has asked for increases that could add another $3 billion. Adding $9.1 billion would add two-thirds (~67%) to PG&E’s overall rates that include both distribution and generation. It would double distribution rates.

This begs two questions:

  1. Is this worth doing to protect properties in the affected urban-wildlands interface (UWI)?
  2. Is there a less expensive option that can achieve the same objective?

On the first question, if we look the assessed property value in the 15 counties most likely to be at risk (which includes substantial amounts of land outside the UWI), the total assessed value is $462 billion. In other words, we would be spending 16% of the value of the property being protected. The annual revenue required would increase property taxed by over 250%, going from 0.77% to 2.0%.

Which turns us to the second question. If we assume that the load share is proportionate to the share of lines at risk, PG&E serves about 18,500 GWh in those areas. The equivalent cost per unit for undergrounding would be $480 per MWh.

The average cost for a microgrid in California based on a 2018 CEC study is $3.5 million per megawatt. That translates to $60 per MWh for a typical load factor. In other words a microgrid could cost one-eighth of undergrounding. The total equivalent cost compared to the undergrounding scenario would be $13 billion. This translates to an 8% increase in PG&E rates.

To what extent should we pursue undergrounding lines versus shifting to microgrid alternatives in the WUI areas? Should we encourage energy independence for these customers if they are on microgrids? How should we share these costs–should locals pay or should they be spread over the entire customer base? Who should own these microgrids: PG&E or CCAs or a local government?





6 thoughts on “Microgrids could cost 10% of undergrounding PG&E’s wires

  1. Pingback: Comparing cost-effectiveness of undergrounding vs. microgrids to mitigate wildfire risk | Economics Outside the Cube

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  3. Pingback: Vegetation maintenance the new “CFL” for wildfire management | Economics Outside the Cube

  4. Pingback: PG&E’s bankruptcy—what’s happened and what’s next? | Economics Outside the Cube

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