Released July 01, 2016 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Developers plan to invest an enormous amount of money in electric transmission projects in the U.S. and Canada over the next few years, but the availability of capital will not be a limiting factor in building new projects, speakers told the Fifth Annual TransForum West conference in Denver this week. According to data compiled by TransmissionHub, about $24.6 billion of transmission projects are under construction in the U.S. and Canada. Looking forward, capital investments will average $20.3 billion per year between 2016 and 2020, with investment demands in some years spiking to about $30 billion, Kent Knutson, director of hubs services for PennWell Corporation (Tulsa, Oklahoma), told about 75 conference attendees this week.
Click the icon at right to see planned electric transmission outlays for the U.S. and Canada.
He estimated about $24.6 billion of transmission projects are under construction. Utilities that have invested heavily in transmission over the 2013-2015 period include: Public Service Electric & Gas (NYSE:PEG) (Newark, New Jersey); Southern California Edison (Rosemead, California), a subsidiary of Edison International (NYSE:EIX) (Rosemead); American Electric Power (NYSE:AEP) (Columbus, Ohio); Xcel Energy Incorporated (NYSE:XEL) (Minneapolis, Minnesota); Dominion Resources Incorporated (NYSE:D) (Richmond, Virginia); FirstEnergy Corporation (NYSE:FE) (Akron, Ohio); and Pacific Gas & Electric (NYSE:PCG) (San Francisco, California).
Knutson acknowledged that not all of the proposed projects will begin construction as originally planned. In fact, speakers at TransForum West agreed, transmission project development in the West was more often than not a story of long waiting periods, missed deadlines and prolonged, frustrating negotiations with powerful stakeholders like the U.S. Department of the Interior (DOI) (Washington, D.C.) and the different branches of the U.S. military, which operate numerous bases west of the Mississippi River.
Data from the Edison Electric Institute (EEI) (Washington, D.C.), the trade group representing shareholder-owned electric utilities in the U.S., also shows the transmission buildout by shareholder-owned electricity companies. Although EEI members constitute a subset of all electricity organizations in the U.S., they do tend to have the heaviest capital investment plans. Several speakers at the TransForum West event shared an estimate prepared by EEI last fall projecting transmission investments by shareholder-owned utilities at $22.1 billion in 2016, $22 billion in 2017 and $20.2 billion in 2018.
Click on the icon at right to see EEI's projection of transmission capital spending plans by U.S. shareholder-owned electric utilities.
Despite the large sums of money electric companies plan to invest in transmission in the U.S. and Canada, speakers on another panel at the conference expressed confidence that banks, equity investors, institutional investors like pension funds, private equity firms and other providers of capital will be able to supply the funds necessary to build projects that win approval.
"Investors are seeking a steady payment stream and once your project is approved, transmission projects offer lower risks, higher returns and lower cost of capital compared to other energy projects," Josh Batchelder, regional vice president of CoBank (Greenwood Village, Colorado), told the conference. The Federal Energy Regulatory Commission (FERC) (Washington, D.C.), the agency that regulates wholesale power transactions and interstate electric transmission, offers incentive returns for companies that transport wholesale electricity on a non-discriminatory, open-access basis. FERC's authorized returns on equity (ROE) have ranged from 9.8% to 12.4% over the last decade, sharply higher than the return on 10-year Treasury securities, which have declined from about 5% to about 1% over that timeframe.
There is a chance FERC will lower its incentive ROE in the future, but Batchelder didn't see that as a significant threat to investment. He cited comments from an executive from Fortis, a Canadian company trying to acquire a U.S. transmission company, to the effect that a pure-play transmission company with no exposure to energy commodity risk offers an attractive risk-adjusted return.
One of the threats to transmission projects that Batchelder does see are disruptive technologies like distributed generation and electricity storage. If those technologies succeed in more widely penetrating the market, they could reduce the need for some transmission projects.
His comments were echoed by other conference speakers. Mitchell Ferguson, associate director of U.S. energy infrastructure at Standard & Poor's (New York, New York), remarked that many homes in his northern New Jersey community have installed rooftop solar generators. "And it's not just upscale, progressive, suburban homeowners who are embracing rooftop solar," he said. "There are plenty of people out West who want to disconnect from the grid and be left alone."
Another speaker, Roman Fontes, a senior investment officer with the Western Area Power Administration (WAPA) (Lakewood, Colorado), said NV Energy (Las Vegas), the electric utility serving most of Nevada, has lost 10% to 15% of its load to rooftop solar. Robert Smith, vice president of transmission development for TransCanyon (Phoenix, Arizona), an independent transmission developer in the West, told the conference, "It is unbelievable how fast rooftop solar has grown in the Southwest. When you pair that with the potential of electric storage technology, you're really going to see a decline in demand for utility-supplied electricity," and thus transmission projects.
So while speakers at the TransForum West conference agreed there are plenty of technological, regulatory and competitive risks facing transmission developers in the West, money isn't one of them--assuming their projects win a favorable environmental impact statement.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, 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. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
Click the icon at right to see planned electric transmission outlays for the U.S. and Canada.He estimated about $24.6 billion of transmission projects are under construction. Utilities that have invested heavily in transmission over the 2013-2015 period include: Public Service Electric & Gas (NYSE:PEG) (Newark, New Jersey); Southern California Edison (Rosemead, California), a subsidiary of Edison International (NYSE:EIX) (Rosemead); American Electric Power (NYSE:AEP) (Columbus, Ohio); Xcel Energy Incorporated (NYSE:XEL) (Minneapolis, Minnesota); Dominion Resources Incorporated (NYSE:D) (Richmond, Virginia); FirstEnergy Corporation (NYSE:FE) (Akron, Ohio); and Pacific Gas & Electric (NYSE:PCG) (San Francisco, California).
Knutson acknowledged that not all of the proposed projects will begin construction as originally planned. In fact, speakers at TransForum West agreed, transmission project development in the West was more often than not a story of long waiting periods, missed deadlines and prolonged, frustrating negotiations with powerful stakeholders like the U.S. Department of the Interior (DOI) (Washington, D.C.) and the different branches of the U.S. military, which operate numerous bases west of the Mississippi River.
Data from the Edison Electric Institute (EEI) (Washington, D.C.), the trade group representing shareholder-owned electric utilities in the U.S., also shows the transmission buildout by shareholder-owned electricity companies. Although EEI members constitute a subset of all electricity organizations in the U.S., they do tend to have the heaviest capital investment plans. Several speakers at the TransForum West event shared an estimate prepared by EEI last fall projecting transmission investments by shareholder-owned utilities at $22.1 billion in 2016, $22 billion in 2017 and $20.2 billion in 2018.
Click on the icon at right to see EEI's projection of transmission capital spending plans by U.S. shareholder-owned electric utilities.Despite the large sums of money electric companies plan to invest in transmission in the U.S. and Canada, speakers on another panel at the conference expressed confidence that banks, equity investors, institutional investors like pension funds, private equity firms and other providers of capital will be able to supply the funds necessary to build projects that win approval.
"Investors are seeking a steady payment stream and once your project is approved, transmission projects offer lower risks, higher returns and lower cost of capital compared to other energy projects," Josh Batchelder, regional vice president of CoBank (Greenwood Village, Colorado), told the conference. The Federal Energy Regulatory Commission (FERC) (Washington, D.C.), the agency that regulates wholesale power transactions and interstate electric transmission, offers incentive returns for companies that transport wholesale electricity on a non-discriminatory, open-access basis. FERC's authorized returns on equity (ROE) have ranged from 9.8% to 12.4% over the last decade, sharply higher than the return on 10-year Treasury securities, which have declined from about 5% to about 1% over that timeframe.
There is a chance FERC will lower its incentive ROE in the future, but Batchelder didn't see that as a significant threat to investment. He cited comments from an executive from Fortis, a Canadian company trying to acquire a U.S. transmission company, to the effect that a pure-play transmission company with no exposure to energy commodity risk offers an attractive risk-adjusted return.
One of the threats to transmission projects that Batchelder does see are disruptive technologies like distributed generation and electricity storage. If those technologies succeed in more widely penetrating the market, they could reduce the need for some transmission projects.
His comments were echoed by other conference speakers. Mitchell Ferguson, associate director of U.S. energy infrastructure at Standard & Poor's (New York, New York), remarked that many homes in his northern New Jersey community have installed rooftop solar generators. "And it's not just upscale, progressive, suburban homeowners who are embracing rooftop solar," he said. "There are plenty of people out West who want to disconnect from the grid and be left alone."
Another speaker, Roman Fontes, a senior investment officer with the Western Area Power Administration (WAPA) (Lakewood, Colorado), said NV Energy (Las Vegas), the electric utility serving most of Nevada, has lost 10% to 15% of its load to rooftop solar. Robert Smith, vice president of transmission development for TransCanyon (Phoenix, Arizona), an independent transmission developer in the West, told the conference, "It is unbelievable how fast rooftop solar has grown in the Southwest. When you pair that with the potential of electric storage technology, you're really going to see a decline in demand for utility-supplied electricity," and thus transmission projects.
So while speakers at the TransForum West conference agreed there are plenty of technological, regulatory and competitive risks facing transmission developers in the West, money isn't one of them--assuming their projects win a favorable environmental impact statement.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, 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. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
