Transmission investments are of vital importance, given that energy drives the U.S. economy (through improved productivity because of modern equipment and tools), makes life more comfortable (no more wood or coal stoves), and allows us to get rid of the horse and buggy and drive that comfortable car.
A grid is a system or network that distributes electrical or other currents to users over a widely distributed system.
“Named the greatest engineering achievement of the 20th century by the National Academy of Engineering, the U.S. electric grid underlies every aspect of modern life. In many respects it is the most complex, synchronized machine on earth--the largest industrial investment in history,” Standard & Poor’s (S&P), a top-notch U.S. rating agency, said in its June article “Tracking Investments in New U.S. Electric Transmission Infrastructure.”
Over the past 100 years, most grid systems didn’t take into consideration the entire nation, but only addressed local and specific regional needs, with transmission lines reaching only those in close vicinity to the power plants.
It is interesting to note that certain components used in the system were installed during Thomas Alva Edison’s (1847-1931) time and need to be replaced.
S&P said that according to the U.S. Department of Energy, 70 percent of existing transmission lines, including transformers, as well as 60 percent of all circuit breakers in the United States were installed more than 25 years ago.
“Essentially, we have a late 19th century system that uses 20th century electro-mechanics in trying to keep up with a 21st century economy,” according to the S&P article.
Between 2001 and 2009, transmission/grid investments added up to $55 billion, increasing steadily between those years, according to a 2011 report by the Edison Electric Institute (EEI), an association formed by publicly owned electric companies.
However, these investments were earmarked toward grid modernization, replacement of old equipment, and assuring more reliable energy transmission.
Most investments went to Eastern sectors in the United States (70 percent), as population was more concentrated in those areas. The remainder was allocated between the West (25 percent of all investments) and Texas (5 percent).
“Investor-owned transmission companies … has quadrupled from approximately $2 billion per year in the 1990s to $8 billion to $9 billion per year during 2008 and 2009,” concluded a study released in May by researchers from the Working Group for Investment in Reliable and Economic Electric Systems (WIRES) and the Brattle Group, which covers the United States and Canada.
Predicting Grid Investments
Given the economic upheaval, energy sales have also taken a beating, with people curtailing their driving, turning down the thermostat in winter, and turning it up in summer. Also, the many foreclosed homes on the market no longer need electricity, which in turn affects energy sales.
“The stage is now set for a big boost in transmission investments,” the S&P article suggested.
S&P predicts that since spending on improving, upgrading, and expanding the grid network had been curtailed during the past few years, projects need to be initiated that will span the entire country and assure reliable electricity transmission, not just to local areas, but crisscrossing the entire nation.
Over the next four years, annual capital spending most likely will rise between $11 billion and $14 billon over the 2000 to 2004 investment outlays, which were between $4 billion and $5 billion.
Furthermore, renewable energy requires a lot of additional networks, because such resources are generally generated in an out-of-the-way area.
The energy transmission sector took up the call for investments. EEI indicated that over 100 projects totaling about $61.2 billion would be completed over the next 11 years. EEI suggested that these investments are only the tip of the iceberg of projects to be initiated between now and 2021.
The projects referred to by EEI include $39.5 billion for upgrades of existing systems and $15.5 billion for meeting a number of reliability standards.
“Renewable studies in all interconnections underscore the need to build more transmission. ... For instance, The National Renewable Energy Laboratory’s recent study concluded that transmission investments would cost $65 billion to $93 billion through 2024 to meet the 20% target,” according to S&P.
The WIRES and Brattle Group study suggests that between 2015 and 2025, total investment needs would amount to $180 billion for energy transmission projects. This amount includes some theoretical numbers, as no concrete information is available at this time. Over the next 20 years, the study predicts the need for $300 billion in investments.
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Creating Jobs
“The potential result of building transmission to facilitate the development of renewable power projects is arguably an additional 130,000 to 250,000 full-time jobs [in the U.S.] each year between now and 2030,” according to the WIRES and Brattle group.
The report suggests that each $12 billion of investment would result in 51,000 direct jobs and a total of 150,000 jobs, if indirect jobs were included; every $16 billion would mean 68,000 direct jobs and 132,000 indirect jobs. At the same time, the investments would result in $30 billion and $40 billion in annual economic activity, respectively.
The cost of building the system is enormous and predicted to be between $240 billion and $320 billion from now until 2030.
“Every $1 billion of U.S. transmission investment supports approximately 12,700 FTE-years of employment and stimulates approximately $2.4 billion of economic activity,” the WIRES and Brattle Group study predicted.
US Energy Policy Catalyst for Investments
The Energy Policy Act of 2005 encouraged investments for improving and building modernized systems and expansion across the entire United States.
“This Act provided the fillip [a boost] for transmission investment by authorizing the Federal Energy Regulatory Commission (FERC) to establish incentive ratemaking and to provide a return on equity (ROE) so companies could attract new investments to transmission facilities. The Act also gave FERC more power to speed up the siting process for new transmission lines,” according to S&P in its article.
Besides, federal transmission pricing policies are the catalyst for future investments. “The adoption of these pricing policies is helping to sustain the continued level of investment growth,” S&P said.
Transmission Investment Hurdles
“Estimates of transmission investment levels are in part contingent on the resolution of transmission investment barriers related to regional planning, permitting and siting, and cost recovery,” the WIRES and Brattle report advised.
For the transmission projects to become viable projects, environmental concerns must be addressed, which are the most challenging concerns, considering the many environmental groups that try to stall such projects.
Interstate networks require permits from many states. Such projects are not only subject to federal laws, but also state laws, and more often than not, county laws, which might conflict with one another.
The researchers warned that if barriers do not get resolved, investment estimates would take a nose dive and undercut the energy industry’s ability to perform to the satisfaction of its consumers.
“Investment barriers in this sector include energy policy risk. Prospective investors in a capital-intensive industry are wary of energy policy changes and modifications that would impinge upon their expected returns,” warned a report from The Fraser Institute, released in May.
Introduction to Energy Transmission
Energy has undoubtedly become the source that drives the United States and other economies. Without energy, productivity would be significantly curtailed, as no manufacturing capacity as it exists today could exist.
Energy today is derived from many sources, including fossil fuels (coal), nuclear fission, and renewable energy sources: wind, solar, biomasses (ethanol fuel) and hydroelectric energy.
However, energy production that requires quite large investments would be useless if it could not be transported to the location where it is needed. This is where energy transmission comes in.
Very large investments are needed for energy transmission in the initial stage, as installation of transmission lines above and below water often span several states or countries.
“Transmission or distribution lines would be required to transmit the power … costs of a new transmission line or pipeline could be prohibitive,” said the Tribal Energy and Environmental Information Clearinghouse in an article on its website.
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