With so much pending policy decisions, including the U.S. Environmental Agency’s Clean Power Plan and the Mercury and Air Toxics Standards (MATS), which are going to be implemented next month, as well as FERC Order 1000, 2015 is set to be a year to remember, according to Kent Knutson, director of Hub Services for PennWell.
Speaking on March 11 during TransmissionHub’s Quarterly Market Update, sponsored by AZZ Galvanizing, Knutson noted that 22.6 GW of coal power are expected to retire this year, and the forecast remains that 49.4 GW will retire before 2020. Those retirements, coupled with MATS, lower natural gas prices and the EPA rules on carbon emissions from existing and planned power plants, which are set to roll out this summer, means “a big change is going to happen … by the end of this year – it’s going to be a change in how power is generated,” he said.
Other issues include FERC Order 745, which involves demand response. As TransmissionHub reported, based on its interpretation of the Federal Power Act (FPA) Sections 824(d) and 824(e), FERC in 2011 issued Order 745 to eliminate barriers to the use of demand response commitments in wholesale markets. The U.S. Court of Appeals for the District of Columbia on May 23, 2014, vacated Order 745 in FERC v. EPSA, finding that FERC’s interpretation of Sections 824(d) and 824(e) was overreaching and that states have exclusive authority to regulate the retail market. U.S. Department of Justice Solicitor General Donald Verrilli, on behalf of FERC, recently filed a petition with the Supreme Court for review of the judgment of the Court of Appeals in FERC v. Electric Power Supply Association (EPSA).
Large number of projects to be energized in 2015
Knutson said that a large number of transmission projects – totaling $22.4bn – are set to be energized this year. Of that amount, $13.2bn are under construction.
He noted that TransmissionHub is tracking a total of $160.1bn of projects planned and under construction from 2015 to 2018, in the United States and Canada, representing 45,662 miles of line. The average investment in transmission during that time period totals $24.1bn per year.
As noted in Knutson’s presentation, statistics continue to support a robust transmission market. According to TransmissionHub data, the $160.1bn in planned investment includes $53bn in HVDC projects and $17.3bn in underground and underwater projects.
Knutson said that 2016 does not look as promising as 2015, with only $10.9bn in projects planned, and only $1bn under construction at this time. He said that $26.6bn is planned in 2017, with $7.2bn of that under construction, and $36.4bn is planned in 2018, with only $0.1bn of that under construction.
This year, of the 191 projects in development, 50 are greater than $100m; in 2016, of the 105 projects in development, 29 are greater than $100m; and in 2017, of the 105 projects in development, 41 are greater than $100m.
The top U.S./Canada projects scheduled to come online this year, that are under construction as of this month, include:
- Southern California Edison’s (SCE) 250-mile, 500-kV, estimated $1.7bn Tehachapi Segments 4-11 project in California
- AltaLink’s 215-mile, 500-kV HVDC, estimated $1.7bn Western Alberta Transmission Line in Alberta, Canada
- Public Service Electric and Gas’ (PSE&G) and PPL Electric Utilities’ 45-mile, 500-kV, estimated $1.5bn Susquehanna Roseland Project in New Jersey and Pennsylvania
- Central Maine Power’s (CMP) 440-mile, 345-kV, estimated $1.5bn Maine Power Reliability Program in Maine
- PSE&G’s 50-mile, 230-kV underground/above-ground, estimated $907m Northeast Grid Reliability Transmission Project
- Xcel Energy’s (NYSE:XEL) 240-mile, 345-kV, estimated $750m Fargo–St. Cloud project in North Dakota and Minnesota
- Great River Energy’s and Xcel Energy’s 250-mile, 345-kV, estimated $735m Brookings County to Hampton project in South Dakota and Minnesota.
- BC Hydro and Power Authority’s 153-mile, 500-kV, estimated $725m Interior to Lower Mainland (ILM) project in British Columbia, Canada
- Xcel Energy’s 153-mile, 345 x2-kV, estimated $580m Hampton–Rochester–La Crosse project in Minnesota and Wisconsin
- Eversource’s (NYSE:ES) 75-mile, 345-kV, estimated $525m Interstate Reliability Project in Massachusetts and Connecticut
Knutson referenced recent TransmissionHub project coverage, including AltaLink’s and ATCO’s Alberta north south 500-kV transmission projects completing line construction, and the Maritime Link project continuing to be on schedule and on budget.
Other recent project coverage includes Ameren (NYSE:AEE) filing an application for the Missouri portion of the 385-mile, 345-kV, $1.1bn Illinois Rivers Project, and Clean Line Energy Partners’ 700-mile, $2bn HVDC Plains & Eastern Clean Line project advancing following approval in Tennessee.
Key drivers, challenges
As noted in Knutson’s presentation, key drivers for transmission development include aging infrastructure and the need for reliability upgrades.
Much of the high voltage transmission in the United States and Canada is 40 to 50 years old, he said, adding that there are more than 300,000 miles of high voltage transmission, more than 2.2 million miles of distribution lines and more than 70,000 substations, “so, there’s a lot out there that needs work and that’s really reflective of most of the projects that we see moving forward.”
Other drivers include transporting renewable energy sources to meet state renewable portfolio standards; the need to comply with the Clean Power Plan rules; coal retirements, with an additional 50 GW of closings between now and 2020; and the need to integrate new generation such as natural gas, solar and wind energy.
Gas, wind and solar energy continue to dominate the new generation landscape. According to the presentation, the time period of 2015 to 2017 will see an investment of 85.7 GW of gas, 26.9 GW of wind and 16.1 GW of solar.
Knutson noted that tax incentives for renewable energy resources remain uncertain, with the federal investment tax credit (ITC), for instance, set to expire in 2016, potentially affecting solar power development. There is no federal production tax credit (PTC) approved currently, he said, adding that lawmakers tried proposing to extend the PTC for five years as part of the Keystone pipeline bill, but that was voted down in a fairly close vote.
Discussing utility and independent development, Knutson noted that most utility projects are proposed for reliability purposes in order to replace aging infrastructure. Utility projects are attractive investments for bankers in that they are rate-based with a guaranteed return on equity.
Many of the merchant projects need investors – that is, suppliers and consumers at both ends of the project.
Knutson also noted that there are well-established non-utility, or non-incumbent, players in the market, including ITC Holdings (NYSE:ITC), Duke-American Transmission Co. (DATC), Anbaric Transmission and Clean Line Energy.
Of transmission development challenges, Knutson noted that most forecasts are for flat load growth, driven by the expansion of energy efficiency, distributed generation and demand response programs; diminishing incentives like lower ROEs, which could stymie investment; FERC Order 1000 challenges such as cost allocation battles; and matters stemming from the states’ implementation of the Clean Power Plan.
SCE is a subsidiary of Edison International (NYSE:EIX). AltaLink is a Berkshire Hathaway (NYSE:BRK) company. PSE&G is a subsidiary of Public Service Enterprise Group (NYSE:PEG). PPL Electric Utilities is a subsidiary of PPL Corporation (NYSE:PPL). Great River Energy is a Touchstone Energy Cooperative.