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Investment in U.S. transmission system steps to center stage

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Kent Knutson's picture
Energy Market Specialist Hitachi ABB Power Grids

Kent Knutson is a market specialist focusing on energy industry intelligence for Hitachi ABB Power Grids Enterprise Software Product Group.  He has more than 30 years of experience designing and...

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The drumbeat of recent support for transmission as the great enabler of growth in renewable resources is building. With a new proposed set of federal incentives supporting investment in interregional grid connections, among other grid needs, expect continued strong growth in the development of clean energy resources in the years to come. If the past is a predictor of the future, the developments spurred from the Energy Policy Act of 2005 showed that investors line up when the right financial incentives align. Massive transmission buildouts like Texas CREZ, CapX2020, MISO’s MVPs, Gateway, and numerous other high-voltage power line project initiatives have proven, time and time again, that “if you build it, they will come.”

On March 31, 2021, President Joe Biden highlighted the key elements of his American Jobs Plan, which, if approved, is estimated to cost about $2 trillion over eight years – with $100 billion targeted toward grid modernization. The unprecedented proposal supports the overarching goal of reaching 100% carbon-free power by 2035. An element of the plan calls for creating a targeted investment tax credit to incentivize the buildout of at least 20 gigawatts (GW) of high-voltage power lines. To better leverage the existing rights-of-way (ROW) along roads and railways, the plan establishes a new Grid Deployment Authority at the Department of Energy. This effort supports several creative new financing tools to spur additional high-priority transmission projects, with the primary goal to mobilize billions of dollars in private capital immediately. 

The plan also proposes a ten-year extension of the existing investment (ITC) and production (PTC) tax credits to support clean energy generation and energy storage growth. Additionally, the plan supports state, local and tribal governments in their grid modernization efforts with policies like clean energy block grants. Along with these numerous new initiatives targeting clean generation and grid modernization, the plan also supports the modernization of existing carbon-free resources like nuclear and hydroelectric power.

Investment in transmission already at record levels

According to annual plant in-service statistics gathered from the Federal Energy Regulatory Commission (FERC) Form 1 filings by the Hitachi ABB Power Grids’ Velocity Suite team of researchers, over the past two decades, U.S. electric companies reported more than $203 billion (bn) in new transmission additions, with 88% ($179bn) added during the most recent decade. Over the ten years from 2010 through 2019, transmission additions grew at an average annual growth rate (AAGR) of 13%, from $8.7bn in 2009 to a record of $23.3bn in 2019, this during a time when actual electricity demand, and overall rates, remained relatively flat across the country.

U.S. utility in-service transmission additions ($bn)

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Electric plant in-service additions include the original cost of new infrastructure added during the year, making it a great indicator of company investment in the electric grid. Transmission in-service additions include breakouts of land and land rights, structures and improvements, station equipment, towers, poles, fixtures, overhead conductors, underground conduits, and other equipment.

U.S. utility in-service transmission additions in 2019

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In 2019, station equipment ($8.8bn), poles and fixtures ($6.4bn), and overhead conductors and devices ($4.4bn) topped the list for in-service transmission additions. Three of the transmission categories increased in-service additions year-on-year in 2019 by more than 20%, including overhead conductors and devices (23.2%), structures and improvements (20.65%), and towers and fixtures (30.61%).

Ambitious grid modernization efforts gain support 

Two studies by two prominent American Universities recently highlighted the need to invest in grid infrastructure to better meet greenhouse gas emissions reduction goals. In December 2020, “Net Zero America,” a study conducted by Princeton University researchers, determined that to meet net-zero emissions goals by 2050, a 30-year effort to upgrade and build out new grid infrastructure will be needed. The effort includes the need to quadruple the current level of wind and solar electricity from 10% to roughly 50% by 2030. One scenario in the study suggests that transmission capacity would need to increase by 60% by the end of this decade – an investment of $360 billion. In addition, the study determined that within a decade, there will need to be about 50 million electric vehicles (eV) on the roads and more than 3 million public charging facilities to meet interim goals. 

In January 2021, the Massachusetts Institute of Technology (MIT) released a study, “Transmission Is Key to a Low-Cost, Decarbonized U.S. Grid.” The report highlighted that to more efficiently utilize solar, wind, and battery technology, more investment in the nation’s grid will need to happen. The study found that establishing high-voltage direct-current (HVDC) links between North America’s three macro-grids, the Eastern, Western, and Texas interconnections, could cut average wholesale costs to just over $70 per megawatt-hour (MWh). That is about 2X current costs but far less than the estimated $135/MWh for reaching carbon-free goals in a system limited to state-by-state planning alone.

In a recent interview in North Carolina pitching the White House infrastructure plan, Energy Secretary Jennifer Granholm stated, “Historically, people on both sides of the aisle have wanted to see investment in infrastructure. It is so important for the nation,” she said. “People need investment in bridges, and in infrastructure related to energy, like the transmission grid. If we are going to add capacity of clean energy to the grid, we need to build more transmission grid.”

High voltage projects in the news

In late December 2020, Ameren Transmission Company of Illinois (ATXI) energized their $1.4bn 375-mile 345 kilovolt (kV) Illinois Rivers Project. The interstate project spans from Palmyra, Missouri, to Sugar Creek, Indiana. The project is part of Midcontinent ISO’s (MISO) Multi-Value Project (MVP) initiative approved back in 2011. The MVP-approved development goal is to strengthen the regional grid and support the integration of renewable energy to meet public policy goals. The 17 MVP project pipeline is nearly complete, with only one segment of one project pending. According to MISO updates, as of January 2021, the total investment in these MVP projects has been $6.57 billion. 

In mid-January 2021, L.S. Power subsidiary Rise Light & Power, which owns Ravenswood, announced plans to develop a 1,200 MW transmission line to bring wind and solar power from upstate New York into the city. Ravenswood is the largest power plant in New York City (NYC). The planned product is named the Catskills Renewable Connector. If all goes to plan, the power line could provide as much as 15% of NYC’s electricity demand when complete in 2026.

Also, in mid-January 2021, construction began on the New England Clean Energy Connect (NECEC). This estimated $950 million investment will deliver 1,200 MW of Canadian renewable hydropower to the New England grid. The project, which spans 145 miles from the Canadian border to a substation near Lewiston, Maine, is expected online by the second quarter of 2023. 

In late January 2021, the New York State Public Service Commission (NYSPSC) approved a 93-mile 345 kV transmission line that will run from Oneida County and extend to Albany County. The project is named the Marcy to New Scotland Upgrade Project – investment is estimated at $854 million. The rebuilt power lines are expected to be in service by the end of 2023 to enable a greater flow of clean energy across parts of the state.

Also, in late January 2021, California developer, Pattern Energy, began construction on the 1,050 MW Western Spirit Wind and Transmission Project in New Mexico. The 154-mile transmission segment, designed to bring wind power across the state, has been in development with the New Mexico Renewable Energy Transmission Authority (RETA) for more than a decade. RETA expects the power line online later this year.

On February 16, 2021, AVANGRID Inc. announced a notice of open solicitation for transmission service on the Excelsior Connect. The company’s proposed underground clean energy superhighway will connect upstate New York with downstate load centers. The proposed line, when complete, will span more than 260 miles across the state. The Tier 4 NYSERDA request for proposals (RFP) is due May 12, 2021.  

In early March 2021, Xcel Energy announced plans to invest $1.7 billion in five segments of high-voltage transmission to connect renewable energy in rural areas with urban demand centers predominantly in Colorado. In total, the proposal includes 560 miles of 345-kV power lines. The project is a cooperative effort with four other Colorado utilities including, Tri-State Generation and Transmission Association, Colorado Springs Utilities, Platte River Power Authority, and Black Hills Energy. The utilities expect construction to begin in 2023, with the first segment online in 2025 and the last segment by 2027. 

On March 30, 2021, the New York Power Authority (NYPA) announced the approval by their board of trustees to pursue the Northern New York Priority Transmission Project (NNYPTP), a major transmission line rebuild expected to harden the resiliency of New York’s power grid and accelerate movement toward meeting the state’s aggressive clean energy goals. The trustees also approved the selection of National Grid as the project’s co-participant. The transmission upgrade project builds on New York’s unprecedented ramp-up of clean energy, including more than $4 billion invested in 91 large-scale renewable projects across the state, the creation of more than 150,000 jobs in New York’s clean energy sector, a commitment to developing 9,000 megawatts of offshore wind by 2035, and 1,800 percent growth in the distributed solar sector since 2011.   

Growing Transmission Capacity in New York State

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Source: New York state portal

Development challenges ahead

Despite the need to build more connectivity between regions to fully realize the looming carbon-free power goals, the process of permitting and construction can be long and tedious – typically taking more than a decade to complete. Quantifying the benefits, allocating the costs, and dealing with local opposition are key hurdles facing developers over the years. Federal support is paramount to get the wheels turning.      

In early February 2021, the Federal Energy Regulatory Commission (FERC) announced plans to prioritize actions that support the buildout of electric transmission by offering a new set of incentives to support the need for interregional planning and development. In March 2020, the Commission introduced rulemaking (RM20-10), proposing changes to FERC’s transmission incentives policies but is still waiting for discussion. In March 2020, the FERC proposed new revisions to its electric transmission incentive policy to help stimulate the development of new transmission infrastructure. The reforms are expected to align closely with the Commission’s current statutory obligation through Section 219 of the Federal Power Act (FPA), added to the Energy Policy Act of 2005. The 2005 Act produced one of the most significant FERC Orders (679) supporting transmission investment ever.

A closer look at transmission investment over time

On July 20, 2006, the FERC implemented a transmission project stimulus package through Order 679 and then added additional guidance through a policy statement written in 2012. Order-679 was created to encourage developers to take on high-risk transmission projects by allowing a myriad of economic incentives, including return-on-equity (ROE) adders and full recovery of prudently incurred costs like pre-commercial and abandoned plant costs. The order also allowed for creative capital structures, accelerated depreciation, and other incentives to support transmission development.  The implementation of Order 679 spurred a tremendous amount of investment over the past 16 years. According to data compiled by the Hitachi ABB Power Grids’ Velocity Suite research team from FERC Form 730 filings, it’s estimated that more than $70 billion in capital expenditures (CapEx) has been invested in the nation’s high-voltage transmission grid because of Order 679 incentives.

Driven by investment incentives, sometimes as high as 300 basis point adders to ROE rates, companies started an unprecedented buildout of high voltage transmission infrastructure. In 2013, during the last year of the nearly $7 billion Texas CREZ buildout, transmission in-service plant additions increased by 33.2% for major electric utilities across the U.S. Order 679 fully and partially supported incentives for other large transmission buildouts, including CapX2020, MISO’s MVP, and PacifiCorp’s Energy Gateway.  These initiatives alone have resulted in more than $10 billion of investment. That level of support helped enable the rapid growth experienced through the last several years by wind and solar resources. 

Along with new financial support and new initiatives to streamline and speed permitting, the U.S. could experience a renaissance in much-needed high-voltage transmission development over the next decade – all to support America’s ever-growing clean-energy policy and goals. 

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