Aging Infrastructure Drives Power Transmission Investments as DER Gain Steam
Digital technologies from apps to smart thermostats are rapidly changing the relationship between ratepayers and their electric service providers, but the century-old quest for reliability continues as the primary driver of investment in the nation’s electric grid.
Many elements of the U.S. electric grid approach or exceed their initial design lifespan. The 2017 American Society of Civil Engineers Infrastructure Report Card noted that most power transmission and distribution lines were built between 1950 and 1969, with expected operating lifespans of 50 years.
Aging infrastructure has been, and remains, a key sector concern while more recent worries over physical and cybersecurity issues also steer capital flows. Yet while the key drivers of investments in transmission infrastructure remain consistent, other parts of the sector are shifting in potentially dramatic ways.
Many headlines have been written on the potential impacts of Federal Energy Regulatory Commission (FERC) Order 1000. Issued in July 2011, the premise behind the order was to create more competition in the transmission sector. While new build transmission-related projects have been slow to materialize, the pace is more tied to the challenges of environmental permitting and land rights acquisition than a lack of opportunities for non-traditional participants to get involved in transmission projects generating steady, long-term regulated returns.
The dynamics of the transmission market are also tied to the vast quantity of installed assets already in place. The bulk of work performed in the sector focuses on upgrades, maintenance and installations of existing network infrastructure on incumbent land and easements as assets age and loads shift due to changes in technology and demographics.
It is interesting to note that even with regulatory uncertainty ranking as the second major challenge to transmission projects, the industry widely views power delivery projects as sound electric sector investments.
This observation is critical as the “search for yield” has shifted from a focus on generation assets — which was prevalent as recently as the 2008-2015 timeframe — towards opportunities in transmission. From investor-owned utilities (IOUs) and incumbent service providers to private equity and alternative investment funds, investors with access to low interest rates and significant amounts of available cash are looking for solid, low-risk returns. Identifying appropriate vehicles has become increasingly challenging.
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