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EEI sees coming peak in transmission investment

Investor-owned utilities invested $20.1 billion in new electricity transmission in 2015, and that number is expected to continue to grow over the next two years, according to a new report from the Edison Electric Institute.

"Continued investment in transmission infrastructure will be required to maintain reliability, enhance grid security, support shifts in the nation's generation portfolio, offer greater flexibility in transmission operations with the increase in distributed energy resources, and meet public policy requirements," the report concludes.

Investment in new transmission by IOUs is expected to peak in 2017, at $22.5 billion, the report finds. In all, IOUs will invest some $61 billion in new transmission over the next three years.

The report does not capture investments by public utilities and private transmission developers, which have also embarked on major transmission projects, many of them high-voltage, direct-current interstate lines.

Ambitious interstate projects got a big boost earlier this month, when the federal Bureau of Land Management approved two major transmission projects across western states. Combined, the TransWest Express and Gateway South projects will span more than 1,100 miles of 500-kV and 600-kV transmission lines across Utah and portions of Wyoming, Colorado and Nevada.

Long-distance transmission is critical to integrating large amounts of wind and solar power onto the grid, in order to bring energy from renewable sources to load centers, mostly on the coasts, and to provide baseload power to areas served by wind and solar plants, which have variable outputs depending on whether the sun is shining or the wind blowing.

"With increasing penetration of distributed energy resources (e.g. private solar, demand response) and an overall interest by customers in clean energy, transmission remains vitally important to maintaining system-wide reliability by providing access to other, flexible power resources in cases when such variable power supply is unavailable," the report explains.

The report covers more than 150 projects, from the Multi-Value Project portfolio in the Midcontinent Independent System Operator Inc. region, which is expected to cost a total of $5.8 billion, to much smaller projects. Whether all these projects will eventually be completed, however, is not certain. New transmission projects, especially ones that cross state lines, tend to face a daunting set of obstacles that includes regulatory requirements, financing issues, and opposition from local politicians and landowners.

Utilities, meanwhile, face a self-reinforcing cycle of growing distributed generation by customers, many of them using rooftop solar panels, and flattening demand from both residential and commercial customers as they secure other sources of energy beyond the traditional grid. At a national level, the need to build new transmission and to modernize the existing grid is clear; on a project-by-project basis, however, the rationale is often harder to demonstrate.

One obstacle highlighted by the EEI report is the difficulty in producing a sufficient return on investment for big transmission projects that are spread over many generation sources and many users but that often require a single big developer.

"There are many financial risks associated with transmission construction, so the permitted return on equity for transmission projects is an important factor when determining the viability of new projects," David Owens, EEI's executive vice president for regulatory affairs, said in a statement. "It is important that the Federal Energy Regulatory Commission recognize that adequate return on investment is critically important to investment in transmission projects."

FERC in September ordered the base return on equity for transmission-owning members of MISO to be reduced. It earlier ordered the return on equity for transmission-owning members of ISO New England Inc. be reduced as well.

What's required, said Lauren Azar, a former U.S. Department of Energy official who led an interagency group formed to streamline approvals for large transmission projects, is "a fundamental change in mindset" among federal regulators.