Transmission investment slow, yet steady at $20 billion per year

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An estimated $15.7 billion worth of electric transmission projects came online in 2015 — up from the $13.7 billion estimated in mid-December 2015 — and while the figure will be considerably less in 2016, that is not an indication that there is not a lot of construction and investment happening, Kent Knutson, director of Hub Services at PennWell, said during the March 16 TransmissionHub Quarterly Market Update presented by AZZ Galvanizing.

Many large projects are expected to be energized in 2017, and the forecast becomes a little more uncertain in 2018 and beyond as anumber of merchant and conceptual projects are not yet under construction, he said.

As noted in his presentation, TransmissionHub is tracking $137 billion worth of electric transmission projects in the United States and Canada — representing 39,370 miles — that are planned and under construction, which is down from the 4Q15 outlook of $141.4 billion. The average investment during 2016 to 2020 is forecast at $20.2 billion per year.

Statistics support a robust transmission market, but it is slowing. His presentation further noted that of the $137 billion that TransmissionHub is tracking, $46.9 billion are HVDC projects, and $17.4 billion are underground and underwater projects.

Of the $11.3 billion that TransmissionHub is tracking in 2016, $8 billion is under construction; of the $18.4 billion in 2017, $11.3 billion is under construction; of the $27.4 billion in 2018, only $1.5 billion is under construction; and of the $24.6 billion in 2019, only $1.2 billion is under construction.

His presentation further noted that of the 132 projects slated for completion in 2016, 22 are estimated to cost more than $100 million; of the 128 projects in 2017, 35 cost more than $100 million; of the 143 projects in 2018, 59 cost more than $100 million; and of the 77 projects in 2019, 40 cost more than $100 million.

Knutson noted that transmission drivers in 2016 include election year uncertainty; two commissioner vacancies at FERC; the extensions of wind and solar tax credits; and the Supreme Court’s stay of the U.S. Environmental Protection Agency’s Clean Power Plan.

Other matters include: the Energy Policy Modernization Act of 2015, or S.2012, which, as reported, has been bogged down in the Senate; fuel diversity and market volatility; as well as President Barack Obama’s recent nomination to the Supreme Court of Merrick Garland, the chief judge of the U.S. Court of Appeals for the D.C. Circuit, following the death of Supreme Court Justice Antonin Scalia.

“[T]here’s a lot of politics — it’s an election year — a lot of decisions that need to be made, and what does this all mean to transmission?” Knutson said. “[F]or the most part, it’s kind of a wait-and-see kind of view in terms of investment.”

Of the Clean Power Plan, for instance, he noted that EPA is set to file on March 28 its reply to a filing made in court by a coalition of states, coal producers, utilities and trade groups that oppose the plan, with oral arguments scheduled for June 2.

It is likely that the Clean Power Plan debate will return to the Supreme Court “and it could take up to two years to settle this,” Knutson said, adding that 18 states have said that they would “wait the decision, meaning that they are not even working on an implementation plan” at this time, even though the first requirement for compliance was scheduled for early September.

Even without the Clean Power Plan, what is seemingly pushing the country toward a cleaner environment is the low natural gas prices as well as affordable renewable energy sources, he said.

As TransmissionHub reported, and as Knutson said during a recent webcast of PennWell’s GenerationHub, the $1.1 trillion Consolidated Appropriations Act passed on Dec. 18, 2015, extended a 2.3 cents per kWh production tax credit (PTC) through 2016; thereafter, there is a 20 percent reduction per year through 2020.

“[I]f there is 'commence to construct’ between now and the end of this year, the full 2.3 cents per kWh PTC would be granted,” Knutson said during the GenerationHub webcast, adding, “[T]hereafter, on an annual basis, 20 percent reduction in that 2.3 cent credit will occur through the end of 2020, and then starting in 2021, the tax credit will be gone completely.”

Also, the investment tax credit was extended as is — 30 percent — for three years through 2019, and it will then ramp down until 2022, when it will be a permanent 10 percent.

The “commence to construction” factor now applies to both the ITC and the PTC, Knutson said.

As noted in his March 17 TransmissionHub presentation, this will drive development in the near term, but will slow rapidly in the long term, especially for wind.

“[G]eneration really is one of the great drivers of what’s going to happen on the transmission side,” Knutson said on March 17, adding that many new power plants are being brought into play involving the country’s three main fuel sources: natural gas, wind and solar power, which represent “95 percent of everything that’s planned.”

According to his presentation, U.S. investment by fuel type from 2016-2018 is forecast as such:

·      85.9 GW of gas, or 66 percent

·      25 GW of wind, or 16 percent

·      20.4 GW of solar, or 13 percent

Knutson noted that one of the biggest factors that will drive future transmission development is increased load, noting that load growth has been tapering off and has been flat for some time. According to his presentation, electric sales during the most recent 12 months ending in August 2015, compared with the same period in 2014 reflect that residential sales are down 0.2 percent; commercial sales are up 0.7 percent; industrial sales are down 0.6 percent; and all sales are up 0.02 percent, or are essentially flat.

As noted in his presentation, transmission development challenges and opportunities include:

·      Diminishing incentives like lower returns on equity, which lessen the attractiveness of transmission investments, with money going elsewhere if the risk is deemed too high

·      Slow permitting and siting development work, which kills projects, although a faster process is supported in the Energy Policy Modernization Act of 2015

·      Near-term boom in tax credits, which support wind and solar resources and means more transmission investment, although “the party’s going to end by the end of the decade”

·      Declining and flat load growth, which will slow development

Knutson’s presentation also included updates on various transmission projects. For instance, in the Midcontinent ISO (MISO) footprint, construction is complete on the:

·      Brookings, SD-SE Twin Cities project, located in Minnesota and South Dakota; the project’s estimated cost as of 4Q15 was $670.7 million

·      Michigan Thumb Loop Expansion project, located in Michigan; the project’s estimated cost as of 4Q15 was $510 million

·      Pleasant Prairie—Zion Energy Center project, located in Wisconsin; the project’s estimated cost as of 4Q15 was $33 million

Projects that are scheduled to come online this year include:

·      Southern California Edison’s 250-mile, 500-kV, estimated $1.7 billion Tehachapi Segments 4-11 project in California

·      Public Service Electric and Gas’ 50-mile, 230-kV aboveground/underground, estimated $975 million Northeast Grid Reliability Transmission Project in New Jersey

·      Xcel Energy’s — along with 11 other partners — 153-mile, 345-kV x2, estimated $500 million Hampton—Rochester—La Crosse Project in Minnesota and Wisconsin

·      Transource Energy’s and Omaha Public Power District’s 180-mile, 345-kV, estimated $400 million Midwest Transmission Project in Nebraska and Missouri

·      Electric Transmission Texas’ 156-mile, 345-kV, estimated $398 million Lobo to Rio Bravo to North Edinburg project in Texas

Projects that are under construction and scheduled to come online in 2017 include:

·      Manitoba Hydro’s 858-mile, 500-kV x2 HVDC, estimated C$4.6 billion Bipole III Project

·      Nalcor Energy’s and Emera’s 684-mile, 350-kV HVDC, estimated C$2.7 billion Labrador Island Link project

·      ENL Maritime Link’s and Nalcor’s 321-mile, 200-kV HVDC, estimated C$1.6 billion HVDC Maritime Transmission Link project

·      Hydro-Quebec’s 248-mile, 735-kV, estimated C$794 million Chamouchouane Bout de Illee Line project

·      Basin Electric Power Cooperative’s and Western Area Power Administration’s 200-mile, 345-kV x2, estimated $350 million Antelope Valley Station to Neset Transmission Project

Projects that are scheduled to come online in 2018 include:

·      TransWest Express’ 725-mile, 600-kV HVDC, estimated $3 billion TransWest Express Project in Wyoming and Nevada

·      Clean Line Energy Partners’ 490-mile, 600-kV HVDC, estimated $1.8 billion Rock Island Clean Line project in Illinois and Iowa

·      PSE&G’s 16-mile, 345-kV underground/aboveground, estimated $1.2 billion Linden—Bergen Reliability Project in New Jersey

·      Duke Energy’s and American Electric Power’s 290-mile, 765-kV, estimated $1.1 billion Pioneer Project in Indiana

·      PowerBridge’s (NRG Energy and Anbaric) 80-mile, 320-kV underground/aboveground HVDC, estimated $1 billion West Point Transmission Project in New York

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