Civil Engineers See Multibillion-Dollar Investment Gap in U.S. Electric Infrastructure

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Keeping the lights on is going to get more expensive. Despite investing an average of $63 billion per year in electric generation, transmission and distribution assets over the prior decade, the U.S. Power Industry needs to increase its annual investment by about $11 billion per year through 2020 to maintain the high level of electric reliability required to power the U.S. economy.

So says a recent report from the American Society of Civil Engineers (ASCE) (Reston, Virginia). The group's recent report, "Failure to Act: The Economic Impact of Current Investments in Electricity Infrastructure," predicts investment in the U.S. electric industry will fall about $107 billion short of what is needed by 2020. About 88% of that gap is expected to be in the transmission and distribution segments of the industry. Failure to increase investment gradually in the near term would lead to a yawning gap in the out years, the group said.

"Investment in our nation's generation, transmission, and distribution systems can improve reliability, reduce congestion, and build the foundation for economic growth," the group said. "Closing the electricity investment gap would lead to fewer brownouts and blackouts and save U.S. businesses $126 billion, and prevent the loss of 529,000 jobs and $656 billion in personal income losses for American families."

The analysis, prepared by the Economic Development Research Group, Incorporated (Boston, Massachusetts), relied on a trend scenario that presumes the mix of electricity generation would continue to evolve as reflected in recent trends, including a long-term evolution toward installation of Smart Grid equipment on the nation's transmission and distribution system.

Looking back over the 2001-10 period, the study noted that average spending for U.S. electric generation averaged $35 billion. That's one reason why the study sounds no alarm bells over the future adequacy of U.S. generation: ASCE is relatively confident that future U.S. generation needs will be met with existing and planned generation projects. Investments in the electric distribution system averaged $20 billion per year over the prior decade, according to the study. But between 2001 and 2010, investments in the transmission system averaged only $8 billion per year.

Many U.S. electric utilities are making hefty investments in their transmission and distribution infrastructure. For more on that issue, see April 16, 2012, article - Pennsylvania Utility Plans Sharp Increase in 2012 Capital Spending and April 2, 2012, article - Ameren Illinois Plans $625 Million Project to Modernize Electric Infrastructure, Create Jobs. But many high-voltage transmission projects have been stymied by local opposition. For more on that, see May 22, 2012, article - Large-Scale Windfarms, Transmission Lines Continue to Face Hurdles from Public, and February 1, 2012, article - Construction Halted on California's $2.1 Billion Tehachapi Transmission Project as Regulators Assess Alternate Routes.

"Electricity is the basis for a competitive U.S. economy and contributes to the success or failure of American businesses," ASCE President Andrew W. Herrmann said in releasing the report. "Our quality of life also depends on access to affordable and reliable energy. We need to close the electricity investment gap to improve reliability, reduce congestion, and build a foundation for economic growth."

"Unless the investment gap is filled, electricity interruptions will rise, increasing costs for households and businesses," Herrmann continued. Service interruptions will become more frequent as equipment fails, voltage fluctuates, and businesses and consumers experience more blackouts or brownouts. "Like our interstate highway system, failing to maintain adequate investment in this national asset has created congestion and the inability for power to flow efficiently from point A to point B."

If recent investment trends continue, the ASCE predicted the following NERC regions will face the greatest investment shortfall by 2020:

• Southeast region: $30 billion shortfall
• West region: $25.5 billion
• Mid-Atlantic region: $18 billion
• ERCOT (State of Texas): $15 billion
• Northeast region: $8 billion
• Midwest region: $4 billion
• State of Florida: $4 billion

By 2040, the "Failure to Act" study predicts significantly higher investment gaps in these NERC regions:

• Southeast region: $226 billion shortfall
• West region: $196 billion
• Mid-Atlantic region: $130 billion
• ERCOT (State of Texas): $56 billion
• Northeast region: $51 billion
• Midwest region: $45 billion
• State of Florida: $18 billion

Brock Ramey, Industrial Info's research manager for the North American Power Industry, estimated that transmission-related investments in the U.S. will average between $10 billion to $15 billion per year over the next few years, rising to an average of about $17 billion per year after 2015. For more on his assessment of project spending trends in the North American transmission industry, see April 26, 2012, article and webcast -- Power Transmission Projects See Increased Spending and Growth in Coming Years.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.