By - Jim Vess

Transmission investment rises spurred by aging infrastructure and a changing grid, survey finds

Energize Weekly, September 13, 2017

Transmission investment has become a growing focus among utility industry executives, according to a survey by Black & Veatch.

“Long-term investment, reliability and aging infrastructure are three of the industry’s top five fundamental concerns,” according to the annual Strategic Directions survey done by the Overland Park, Kans.-based engineering and consulting group. The two other concerns are cybersecurity and environmental regulations.

The online survey, conducted in May, complied the responses of 533 utility executives spanning investor-owned utilities, publicly owned utilities, electric cooperatives and independent power producers.

The emphasis on transmission is in part driven by aging infrastructure. The 2017 American Society of Civil Engineers Infrastructure Report Card found that most electric transmission and distribution lines were built between 1950 and 1969, with expected operating life spans of 50 years.

Sixty percent of survey respondents cited reliability and aging infrastructure as the major drivers of transmission investments.

It is also being driven by the increasing penetration of new distributed generation and storage technologies—44 percent of the respondents said they are planning investments in solar photovoltaic installations and 43 percent said they were investing in wind, adding these resources to their systems in the next five years.

More than a quarter of those surveyed said their companies were either running or developing an energy storage pilot program and nearly half said they have it on their “technology roadmap.”

“The industry is well aware that advanced technologies such as energy storage, distributed generation and microgrids will impact transmission investments in the future, but debate over the scale remains active,” the survey said.

About 8 percent of the respondents’ utilities were already working to mitigate these impacts. Two-thirds said they either recognize or are in the process of investigating the impacts going forward.

“Investments in transmission and distribution (T&D) are rising sharply,” the report said. “Innovation that speeds the adoption and integration of renewable energy is at a premium. Despite headlines suggesting potential rollbacks of emissions mandates, customer and shareholder pressures are driving power providers to stick to their long-term roadmaps, driving the grid further towards sustainability.”

Transmission is also seen as an investment opportunity—particularly in long-term, regulated transmission projects—as utilities invest less in large-scale generation projects, such as nuclear and coal-fired units. As a result, more capital is being directed to transmission assets, the report said.

“We are seeing heightened focus on investments in T&D, and it’s no surprise that renewable energy assets are behind a surge in merger and acquisition activity aimed at bringing more renewables and distributed energy resources online,” the survey said.

While reliability concerns still drive most transmission investment, the “disruptive potential” of distributed renewable generation also requires more flexibility than an aging grid can offer.

And so transmission companies are continuing to make large grid investments, such as National Grid’s recent announcement of a new 1,200 megawatt project that would bring clean energy from Canada to New England.

These large-scale transmission projects can also have investor appeal. Investors including service providers, investor-owned utilities and private equity and investment firms—with access to low interest rates and large amounts of available cash are looking for solid, low-risk returns, the report said.

“Identifying appropriate vehicles has become increasingly challenging,” Dave Abrams, a Black & Veatch executive vice president, and Judy McArdle, a senior managing director, wrote in an analysis. “For well-capitalized, risk-averse investors, transmission projects offer the ideal combination they seek.”

The survey also found that despite the change in policies toward energy and environment by the Trump administration, utilities executives were not dramatically overhauling their plans and targets.

“Environmental regulations and frameworks such as the Clean Power Plan and the Paris climate agreement are in the headlines, but utility leaders are sending clear signals that they will stick with forward-looking business plans focused on efficiency, reliability and a reduced carbon footprint,” the report said. “As political discussions continue, the electric industry remains driven by market and customer demand, an approach that prioritizes a reliable, sustainable grid and assets that will scale and return value.”

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